TABLE OF CONTENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

i
		
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

TABLE OF CONTENTS	 	 iii

Table	of	Contents	

MESSAGE	FROM	THE	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	...............................................................................................................	12	

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

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

Automotive	Industry	Financing	Program	....................................................................................................	13	

American	International	Group	(AIG)	Investment	Program	.................................................................	14	

Operational	Goal	Two:	Continue	Helping	Families	in	Need	to	Avoid	Foreclosure	.............................	15	

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	2012	and	2013	Financial	Summary	and	Cumulative	Net	Income	......................................	20	

Key	Trends/Factors	Affecting	TARP	Future	Activities	and	Ultimate	Cost	.............................................	25	

Systems,	Controls,	and	Legal	Compliance	...........................................................................................................	27	

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

Part	2:	Financial	Report	

Message	from	the	Chief	Financial	Officer	(CFO)	...............................................................................................	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	.................................................................................................................	75	

Other	Information	–	Schedule	of	Spending	.........................................................................................................	77	

Part		3:	Appendices	

Appendix	A:	TARP	Glossary	......................................................................................................................................	80	

Appendix	B:	Abbreviations	and	Acronyms	.........................................................................................................	82	

WEBSITES	..........................................................................................................................................	inside	back	cover
THE DEPAR

iv

TMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

MESSAGE FROM THE ASSISTANT SECRETARY
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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

vi	 	 MESSAGE FROM THE ASSISTANT SECRETARY

wind-down these investments through repurchases by banks, asset sales, and 

restructurings. 

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

the TARP credit market programs, including investments made under the PublicPrivate 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 2013, OFS collected $23.5 billion as compared to $19.1 billion of disbursements 

under these programs. 

• Auto Industry Financing Program. As of September, 30 2013, OFS has collected 

$53.3 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 General Motors (GM) is anticipated to be completed by December 

31, 2013. In November 2013, OFS received additional repayment of $5.9 billion from 

Ally Financial Inc. (Ally) under an agreement announced in August. As a result, 

OFS has recovered over 70% of the investment in Ally Financial Inc. (Ally) through 

repayments, dividends, and proceeds in excess of costs. OFS is actively seeking to 

wind-down the remaining investment in Ally. 

• 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 cancelled. 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 proceeds from repayments, sales, dividends, interest, and other 

income related to AIG assets totaled $55.3 billion. As Treasury’s non-TARP AIG 

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

excess of cost were $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 (includes government sponsored enterprise (GSE) and non-GSE) have also set 

new mortgage modification and consumer protection standards which have helped to 

transform the mortgage servicing industry and thereby help millions more families. On 

May 30, 2013, the Obama Administration extended the application deadline for the Making 

Home Affordable Program through December 2015 in order to provide struggling 

homeowners additional time to access sustainable mortgage relief. 
MESSAGE FR

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

viii	 	 EXECUTIVE SUMMARY

EXECUTIVE SUMMARY 

The U.S. Department of Treasury’s (Treasury), 

Office of Financial Stability (OFS) presents to 

the reader the fiscal year 2013 Agency Financial 

Report (AFR) for the Troubled Asset Relief 

Program (TARP). The enclosed Management’s 

Discussion and Analysis (MD&A) is required 

supplementary information to the financial 

statements and provides a high level overview of 

OFS, which is the office within the Treasury 

that was established to implement TARP, 

pursuant to the Emergency Economic 

Stabilization Act of 2008 (EESA). 

Five 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 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 the federal government, the U.S. economy 

faced the risk of falling into a second Great 

Depression. 

It was out of these extraordinary circumstances 

in the fall of 2008 that TARP was created as a 

central part of a series of emergency measures 

by the federal government. 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 $421.6 billion, OFS has collected 

$405.5 billion (or $423.0 billion if including the 

$17.5 billion in proceeds from the additional 

Treasury AIG shares discussed on page 14) 

through repayments, sales, dividends, interest, 

and other income. As of September 30, 2013, 

only $23.5 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: 

Investment and Housing. In total, OFS has 

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 of ensuring the overall 

stability and liquidity of the financial system, 

preventing avoidable foreclosures, and by 

preserving homeownership. 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 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

EXECUTIVE SUMMARY	 	 ix

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 have generated positive returns on 

behalf of taxpayers. 

As of September 30, 2013, 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 loan commitment made through 

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 with the processing of 

the fifth and final disposition of securities. 

OFS continues to wind-down the Automotive 

Industry Financing Program (AIFP) with the 

sale of 399 million shares of GM common stock 

during fiscal year 2013. These sales were 

conducted according to the plan announced in 

December 2012 to sell OFS’s remaining shares 

in GM within the next 12-15 months, subject to 

market conditions. In November 2013, per an 

August 2013 agreement, OFS collected a total of 

$5.9 billion from Ally, as it repurchased all of its 

MCP stock from OFS and paid the agency to 

eliminate certain rights under the original 

agreement. OFS is actively seeking to winddown the remaining investment. 

OFS exited its remaining holdings in the 

American International Group, Inc. (AIG) 

Investment Program in December 2012 and sold 

remaining warrants in March 2013. As of 

September 30, 2013, OFS does 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 

May 30, 2013, the Administration extended the 

application deadline for MHA programs through 

December 31, 2015, to provide struggling 

homeowners additional time to access 

sustainable mortgage relief, and to align the end 

date with other key assistance programs. 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 provides funding 

to 18 states and the District of Columbia to 

provide assistance to struggling homeowners 

through locally-tailored programs. All 19 

programs 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 portals to aid homeowners 

in applying for assistance, and hiring 

underwriters and other staff to review and 

approve applications. 

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 has taken a 

number of steps during fiscal years 2012 and 

2013 to dispose of its outstanding investments in 

a manner that balances the need to exit these 

investments as quickly as practicable with 

maximizing returns on behalf of taxpayers. OFS 

also takes steps to ensure that TARP recipients 

comply with any TARP-related statutory or 

contractual obligations such as executive 

compensation requirements and restrictions on 

dividend payments. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

x	 	 EXECUTIVE SUMMARY

OFS’s final goal is to continue to operate with 

the highest standards of transparency, 

accountability, and integrity. OFS posts a 

variety of reports online that provide the reader 

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 collected to date. As part of this 

effort, in June 2013, OFS enhanced and 

expanded the existing TARP Tracker on its 

website to enable users to view the flow of funds 

for a specific time period or over the lifetime of a 

TARP program. OFS also publishes the audited 

annual report. In addition, OFS continues to 

maintain productive working relationships with 

three oversight bodies charged with auditing 

and reviewing the TARP activities. 

In addition to discussing program performance, 

the MD&A also addresses OFS’s financial 

performance in the Fiscal Year 2013 and 2012 

Financial Summary and Cumulative Net Income

section. OFS provides an overview of its 

financial data and explains its fiscal year 2013 

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. 
MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

1
THE DEPAR

2

TMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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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 programs to help 

stabilize the nation’s banking institutions. A 

total of $245.5 billion was invested through 

TARP bank support programs. 

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 to businesses 

and consumers to avert a potential collapse of 

the system. 

With the additional capital, CPP participants 

were better equipped to undertake new lending 

and continue to provide other services to 

consumers and businesses, even while absorbing 

write-downs and charge-offs on loans that were 

not performing. OFS received preferred stock or 

debt securities in exchange for the CPP 

investments. Most financial institutions 

participating in the CPP pay 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 recover.

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, in a way that maximizes 

timely OFS collections and helps avoid bank 

failures. 

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 to prevent a loss of confidence in these 

critical institutions. This could have resulted in 

substantial disruption to financial markets, 

threatened the financial strength of similarly 

situated financial institutions and undermined 

the overall economy. 

OFS invested a total of $40.0 billion in two 

institutions – Bank of America (BofA) and 

Citigroup – under the TIP. These investments 

were made in addition to those that the banks 

received under the CPP. 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, which was higher 

than the initial CPP rate. 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. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS	 	 5

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 

(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 $2.2 

billion was OFS’s portion. 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 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

6	 	 MANAGEMENT’S DISCUSSION AND ANALYSIS

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 

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), thereby allowing banks and other 

financial institutions to re-deploy capital and 

extend new credit to households and businesses. 

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. This in 

turn would help to increase the amount of credit 

available to consumers and small businesses. 

Term	Asset‐Backed	Securities	Loan	Facility	

The Term Asset-Backed Securities Loan Facility 

(TALF) is a joint OFS-Federal Reserve program 

that was designed to restart the asset-backed 

securities (ABS) and commercial mortgagebacked 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, including working capital, 

machinery, equipment, furniture, and fixtures. 

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. Through 

its purchases, OFS injected liquidity into this 

market to help restart the flow of credit, 

enabling pool assemblers to purchase additional 

small business loans from loan originators. 

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
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS	 	 7

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 

posed a significant risk to financial market 

stability and threatened the overall economy. It 

could have also had disastrous consequences for 

other auto manufacturers and the many 

suppliers and other businesses that depended on 

the automotive industry. This 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. 

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 are being 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 providing credit for other 

financial products. When the financial crisis hit, 

AIG had hundreds of billions of dollars in 

commitments without the capital and liquid 

assets 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. This assistance was 

provided because the consequences of a company 

of AIG’s size and scope failing at that time, in 

those circumstances, would have had farreaching and catastrophic effects for the 

economy and for American families and 

businesses. 

During this time, the Federal Reserve and OFS 

took a series of steps to prevent AIG’s disorderly 

failure and mitigate the systemic risks. The 

initial assistance to AIG was provided by the 

FRBNY before the passage of EESA and the 

creation of TARP. After EESA became law, 

OFS and the 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 

                                                            

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

and the FRBNY. A series of integrated 

transactions and corporate actions were 

executed to accelerate the repayment of U.S. 

taxpayer funds and to promote AIG’s transition 

from a majority government owned and 

supported entity to a financially sound and 

independent entity. Following the 

restructuring, OFS’s total investment in AIG 

was $67.8 billion. 

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. 

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. 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 through a short 

sale or a deed-in-lieu of foreclosure. OFS has 

committed $29.9 billion under the MHA 

program. 

MHA is aimed at helping 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. In most cases, this means 

making their monthly mortgage payments more 

affordable and sustaining those new mortgage 

terms over time so homeowners can avoid the 

pain and substantial cost of foreclosure. 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 levels. OFS also introduced 

additional programs under MHA to help 

homeowners who are unemployed, “underwater” 

on their loan (those who owe more on their home 

than it is currently worth), or are struggling 

with a second lien. 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. In early 2012, 

the Administration announced important 

enhancements to MHA that expanded the pool of 

eligible borrowers. Extending the reach of 

HAMP will assist a broader pool of struggling 

homeowners, offer support for tenants at risk of 

displacement due to foreclosure, and provide 

more robust relief to those who participate. On 

May 30, 2013, the Administration extended the 

application deadline for MHA programs to 

December 31, 2015. Extending the program for 

two years will benefit many additional families 

while maintaining clear standards and 

accountability for the mortgage industry. Taken 

together, these enhancements will help the 

housing market recover faster from an 

unprecedented crisis. 

In addition to HAMP, MHA includes several 

additional programs to help homeowners 

refinance or address specific types of mortgages, 

in conjunction with the Federal Housing 

Administration (FHA), the United States 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS	 	 9

Department of Agriculture (USDA), and the 

Department of Veterans Affairs (VA). 

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 

and the vast majority of underwater 

homeowners to a broader-based $7.6 billion 

initiative encompassing 18 states and the 

District of Columbia (DC). 

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 goal to 

ensure the overall stability and liquidity of the 

financial system, prevent avoidable foreclosures, 

and preserve homeownership. The following 

discussion of OFS operational goals focuses 

largely on the significant events that occurred 

during fiscal years 2013 and 2012. A more 

comprehensive discussion of each program, 

including its development and prior years’ 

performance, can be found in the TARP Four 

Year Retrospective which is available at: 

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

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, 2013, OFS has collected more than $273.4 

billion through repayments, dividends, interest, 

warrant sales, and other income, representing 

$27.9 billion in excess of disbursements. No 

more taxpayer money is being invested in banks 

under TARP. The final investment under the 

CPP – the largest bank program under TARP – 

was made in December 2009. 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 2013, OFS made substantial 

progress winding down the CPP according to the 

three-pronged exit strategy announced in May 

2012 and described in further detail below. 

From inception of the program through 

September 30, 2013, OFS has received $197.9 

billion in CPP repayments/sales, along with 

$12.0 billion in dividends and interest, and $14.7 

billion of proceeds in excess of cost totaling 

$224.7 billion. As of September 30, 2013, $3.1 

billion in CPP gross investments remained 

outstanding, including 24 institutions that are 

in bankruptcy or receivership, representing an 

aggregate investment of $771 million that is 

currently not collectible. 

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. OFS 

cannot demand repayment of CPP preferred 

stock, nor is OFS’s approval required for 

financial institutions to repay. 

OFS announced a three-pronged exit strategy for 

the program on May 3, 2012. That strategy 

includes waiting for those banks that are 

capable of repaying in the near future to repay 

at par, selling banking investments to private 

investors through auctions in cases where the 

bank is not expected to be able to repay in the 

near future, and, in a limited number of cases, 

restructuring investments. Throughout fiscal 

year 2013, OFS continued to implement that exit 

strategy by periodically selling preferred stock 

and subordinated debt in CPP participants 

through both public and private auctions. OFS 

held 14 auctions with combined proceeds of $1.5 

billion during fiscal year 2013 compared to 6 

auctions with $1.3 billion in proceeds in fiscal 

year 2012. During fiscal year 2013 and 2012, 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS	 	 11

173 and 96 investments were repaid or sold for a 

total of $4.8 billion and $8.2 billion, respectively. 

Another component of OFS’s exit strategy for the 

CPP is to restructure certain investments in 

limited cases when the terms result in the best 

return for taxpayers. 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. OFS agrees to receive cash (sometimes 

at a discount to the original par value of the 

investment) or other securities, which can be 

more easily sold. 

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, 2013, OFS has collected $7.9 

billion in net proceeds from the sale of warrants 

since inception. OFS periodically releases a 

Warrant Disposition Report that provides detail 

about its sale of warrants. These reports can be 

found at: 

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

Additional information on the CPP, including 

details on the programs 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. OFS received $3.0 billion in 

total TIP dividends during the life of the 

program. OFS also received warrants from each 

institution which provided additional returns on 

the investments. OFS sold the BofA warrants in 

fiscal year 2010 for $1.2 billion and the 

Citigroup warrant in fiscal year 2011 for $190 

million. Additional information on TIP, 

including details on the programs 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	

As of September 30, 2013, OFS has fully wound 

down the AGP 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 

programs 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 2013 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 

their investments. 

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 

2013 and 2012, OFS collected a total of $97 

million and $14 million, respectively, in 

repayments, dividends and interest from 

institutions in the CDCI program. As of 

September 30, 2013, $475 million in CDCI 

investments remained outstanding. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

12	 	 MANAGEMENT’S DISCUSSION AND ANALYSIS

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 $23.5 billion has been collected 

through September 30, 2013. 

Public	Private	Investment	Program	

During fiscal year 2013, OFS completed the 

wind-down of the PPIP. During fiscal year 2013 

and 2012, 6 and 2 PPIFs wound down, repaying 

$5.7 billion and $5.6 billion in debt and $4.1 

billion and $1.7 billion in equity capital invested 

by OFS, respectively. In addition, during fiscal 

years 2013 and 2012, OFS received $271 million 

and $1.4 billion in interest and investment 

income and $1.2 billion and $223 million in net 

proceeds in excess of costs, respectively from 

these PPIFs. The final outstanding equity 

repayment was made in June 2013. As of 

September 30, 2013, no debt or equity 

investments are outstanding. 

The latest PPIP Quarterly Report includes a 

summary of PPIP capital activity, portfolio 

holdings and current pricing, and program and 

fund performance through September 30, 2013. 

OFS has published 16 quarterly reports on PPIP 

to date and expects to provide additional 

information as the program completes its winddown. These reports 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. OFS’s commitment was later reduced to 

$4.3 billion in July 2010 after the program 

closed to new lending. In June 2012, the Federal 

Reserve Board and OFS agreed that it was 

appropriate to further reduce the credit 

protection OFS provides the TALF, LLC to $1.4 

billion from $4.3 billion as the underlying TALF 

loan portfolio decreased through scheduled and 

voluntary payments. During 2013 this amount 

was further reduced to $100 million – the initial 

loan amount disbursed to fund the TALF, LLC. 

During fiscal year 2013, OFS’s original 

disbursed investment through the program was 

fully repaid with interest. As of September 30, 

2013, the balance of outstanding TALF loans 

provided by FRBNY had declined to $101 million 

from $1.5 billion on September 30, 2012, due to 

scheduled and voluntary prepayments by 

borrowers. All loans that have not been repaidin-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, 2013, accumulated income earned 

from investments in TALF, LLC totaled $583 

million, all of which occurred during fiscal year 

2013. 

Additional information on TALF, including 

details on the programs 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 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS	 	 13

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 made substantial progress in the winddown of the AIFP during fiscal year 2013. In 

total, OFS disbursed $79.7 billion in loans and 

equity investments to the auto industry through 

the AIFP. As of September 30, 2013, OFS has 

collected $53.3 billion through sales, 

repayments, dividends and interest under this 

program. 

In December 2012, OFS announced its intent to 

fully exit its investment in GM within the next 

12-15 months. Concurrently with that 

announcement, GM purchased 200 million 

shares of GM common stock from OFS, for 

proceeds of $5.5 billion. In early 2013, OFS 

commenced the disposition of its remaining 300 

million common shares of GM common stock 

through a series of pre-arranged written trading 

plans. In June 2013, OFS sold an additional 30 

million shares of GM common stock in an 

underwritten sale in connection with the 

inclusion of GM common stock in the S&P 500 

index for proceeds of $1.0 billion. The total 

amount collected for fiscal year 2013 was $12.0 

billion. As of September 30, 2013, 101 million 

common shares remained outstanding valued at 

$3.6 billion. OFS expects to complete the 

disposition of all remaining shares by the end of 

2013. 

OFS invested $16.3 billion in Ally Financial 

(Ally) under TARP. As of September 30, 2013, 

OFS’s outstanding investment in Ally stood at 

$13.7 billion. Ally made substantial progress in 

completing 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 2013, Ally, ResCap, and ResCap’s major 

creditors agreed on terms for a plan of 

reorganization and the settlement of certain 

claims against Ally. The bankruptcy court has 

approved this agreement and is expected to rule 

on the plan of reorganization in early fiscal year 

2014. Ally also sold or entered into agreements 

to sell all of its international auto finance 

operations for a total of $9.2 billion. 

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 is actively seeking to wind-down the 

remaining investment in Ally, which represents 

approximately 63 percent of Ally’s common stock 

after Ally’s private placement completed in 

November 2013. 

Additional information on the AIFP, including 

details on the programs purpose, overview, and 

status can be found at the following website: 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

14	 	 MANAGEMENT’S DISCUSSION AND ANALYSIS

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. 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 which were later 

cancelled. 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 has been 

recovered through sales and other income. 

In fiscal year 2011, Treasury, including OFS, the 

FRBNY, the trustees of the AIG Facility Trust 

(Trust)2 and AIG completed a restructuring of 

government investments in AIG. As part of the 

restructuring, Treasury received 1.7 billion AIG 

shares (1.1 billion TARP shares and 563 million 

additional Treasury shares from the trust 

established by the FRBNY for the benefit of 

Treasury). Since the restructuring, OFS 

managed both the TARP and additional 

Treasury shares and sold them on a pro-rata 

basis. 

During fiscal year 2012, AIG completed the 

repayment of OFS’s preferred interests in the 

AIG SPVs for proceeds of $9.6 billion. In 

addition, OFS conducted four offerings that sold 

a total of 1.2 billion shares of AIG common stock 

(including 806 million TARP shares) at prices 

that ranged from $29.00 per share to $32.50 per 

share. Total proceeds from these sales 

amounted to $38.2 billion, consisting of $25.2 

billion in proceeds to OFS and additional 

proceeds to the Treasury for the additional 

Treasury shares of $13.0 billion. The proceeds 

                                                            

2 The independent trust established to manage the 

Treasury’s beneficial interest in preferred AIG shares 

from the FRBNY. 

to OFS from such common stock sales were $9.9 

billion less than cost. 

During fiscal year 2013, OFS sold its and 

Treasury’s remaining 234 million shares of AIG 

common stock in two underwritten public 

offerings for aggregate proceeds of 

approximately $7.6 billion. The proceeds from 

these sales consisted of $5.0 billion to OFS and 

additional proceeds to the Treasury for 

additional Treasury shares of $2.6 billion. On 

March 1, 2013, AIG repurchased warrants 

issued to OFS in 2008 and 2009 for 

approximately $25 million. OFS disbursed a 

total of $67.8 billion to AIG, and following this 

sale, OFS’s cumulative net proceeds from 

repayments, sales, dividends, interest, and other 

income related to AIG assets totaled $55.3 

billion, and OFS has no residual interest in AIG. 

OFS sold all the TARP and additional Treasury 

shares at an average price of $31.18 per share. 

Because the additional Treasury shares came 

from the trust, the additional Treasury shares 

were provided to Treasury at no cost and are not 

included in the OFS financial statements. The 

TARP shares had a cost basis of $43.53 per 

share. However, the figure of $28.73 per share 

was often referred to as Treasury’s “break-even” 

price for AIG common stock sales in order for 

Treasury to recover the TARP AIG investment 

because that number averages the cost over the 

TARP shares and the additional Treasury 

shares. Thus, the average price realized was in 

excess of that break-even price. While TARP 

recovered less than its total investment, this was 

offset by the proceeds from the additional 

Treasury shares of AIG, resulting in overall 

proceeds exceeding disbursements for Treasury. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS	 	 15

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, 2013, 91 non-GSE servicers are participating 

in MHA. As of September 30, 2013, OFS has 

commitments to fund up to $29.9 billion in MHA 

payments and has disbursed $6.5 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 

and encourage servicers to improve processes 

and performance for foreclosure prevention 

activities. 

MHA performance highlights for fiscal year 2013 

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 programs 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 responsible homeowners who are 

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, 2013, approximately 1.3 

million homeowners have received permanent 

modifications through HAMP.3 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 40 percent 

median reduction in their mortgage payments—

representing more than $546 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. As of September 30, 

2013, homeowners in HAMP have had their 

principal reduced by an estimated $22.3 billion. 

On May 30, 2013, the Administration extended 

the application deadline for MHA programs 

through December 2015 to provide struggling 

homeowners additional time to access 

sustainable mortgage relief, and to align the end 

dates for key assistance programs. OFS and the 

U.S. Department of Housing and Urban 

Development (HUD) announced that the new 

deadline was determined in coordination with 

the Federal Housing Finance Agency (FHFA) to 

align with extended deadlines for the Home 

Affordable Refinance Program (HARP) and the 

Streamlined Modification Initiative for 

homeowners with loans owned or guaranteed by 

Fannie Mae and Freddie Mac. 

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, 

                                                            

3 667,093 of these modifications were OFS funded. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

16	 	 MANAGEMENT’S DISCUSSION AND ANALYSIS

locally-targeted foreclosure prevention 

programs. As of September 30, 2013, all 19 

HFAs are fully operational and have created 

extensive infrastructures to operate these 

programs, including selecting and training 

networks of housing counselors to assist with 

applications, creating homeowner portals to aid 

homeowners in applying for assistance, and 

hiring underwriters and other staff to review 

and approve applications. The five largest 

servicers (Bank of America, JPMorgan Chase, 

Wells Fargo, Citibank, and GMAC) are currently 

participating in programs in all 19 jurisdictions, 

primarily through mortgage payment assistance 

and mortgage loan reinstatement assistance. 

As of September 30, 2013, the 19 HFAs have 

collectively drawn approximately $2.9 billion 

(38.3 percent) of the $7.6 billion allocated under 

the program. For fiscal years 2013 and 2012, 

this program has disbursed $1.4 billion and $861 

million, 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 

have entered into agreements with borrowers. 

Each HFA submits a quarterly report on the 

progress of its program. These reports include 

the states’ performance on metrics set by OFS on 

various aspects of their programs. Direct links 

to each state’s most recent performance report 

can be found at: 

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

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, the Department of Housing 

and Urban Development (HUD) and Department 

of the 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 

experienced by FHA associated with this 

program (subsequently reduced to $1.0 billion in 

fiscal year 2013 due to low utilization). As of 

September 30, 2013, FHA guaranteed 3,015 

Refinance loans with a total face value of almost 

$489 million covered under OFS’s letter of credit 

facility. One default has been realized resulting 

in $47,840 in claim payments by OFS. 

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 

2013 and 2012 to dispose of OFS’s outstanding 

investments in a manner that balances the need 

to exit these investments as quickly as 

practicable with maximizing returns for 

taxpayers. OFS also takes steps to ensure that 

TARP recipients comply with any TARP-related 

statutory or contractual obligations such as 

executive compensation requirements and 

restrictions on dividend payments. 

OFS’s exit strategies for TARP investment 

programs depend on each investment and are 

subject to market conditions. In disposing of 

TARP investments, OFS takes a disciplined 

portfolio approach – reviewing each investment 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS	 	 17

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. 

Utilizing auctions promotes competition and 

produces prices that are market-driven. 

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 also takes steps to ensure that TARP 

recipients comply with their TARP-related 

statutory and contractual obligations. Statutory 

obligations include executive compensation 

restrictions. Contractual obligations vary by 

investment type. For most of OFS’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 GM and Ally) 

must comply with additional restrictions on 

executive compensation, lobbying, corporate 

expenses and internal controls and must provide 

quarterly compliance reports. 

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 ensure that servicers’ 

obligations under MHA requirements are being 

met. In fiscal year 2011, OFS began publishing 

quarterly assessments of the largest servicers 

comprising approximately 89% of the HAMP 

mortgage servicing market and continued 

publishing these quarterly assessments 

throughout fiscal year 2013. These assessments 

have helped force the industry to improve its 

practices. 

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 on the 

Financial Stability section of the Treasury.gov 

website, which can be found at: 

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

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; 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

18	 	 MANAGEMENT’S DISCUSSION AND ANALYSIS

 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 monthly 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; 

 A quarterly report on PPIP that provides 

detailed information on the funds, their 

investments, and returns. It is typically 

released within one month after the end 

of each quarter; and 

 A semi-annual report on warrant 

dispositions. 

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 and will expand reporting to 

include newer initiatives that are part of MHA. 

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 fifth OFS 

Agency Financial Report (AFR), and includes the 

audited financial statements for the fiscal years 

ended September 30, 2013 and September 30, 

2012. Additional reports for prior periods are 

available at: 

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

In its five years of operation, TARP’s financial 

statements have received five 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 2012, 2011, 2010 and the period 

ending September 30, 2009. 

TARP	Retrospective	Reports	and	the	TARP	

Tracker	

In March 2013, OFS published the Troubled 

Asset Relief Program Four Year Retrospective 

Report - An Update on The Wind-Down of 

TARP. This serves as an update to OFS’s TARP 

Three-Year Anniversary report, which was 

published in October 2011. In October 2010, 

OFS published the TARP Two Year 

Retrospective, which contains a comprehensive 

history of each TARP program. These reports 

include information on TARP programs and the 

effects of TARP and additional emergency 

measures taken by the federal government to 

stabilize the financial system following the 2008 

crisis. 

In addition, 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 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
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS	 	 19

Oversight	by	Four	Separate	Agencies	

Congress also established four avenues of 

oversight for TARP: 

 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; and 

 The Congressional Oversight Panel 

(COP), established by EESA Section 125. 

COP concluded its operations in 

accordance with EESA on April 3, 2011. 

OFS has productive working relationships with 

all of these bodies, and cooperates with each 

oversight agency’s effort to produce periodic 

audits and reports that focus on the many 

aspects of TARP. Individually and collectively, 

the oversight bodies’ audits and reports have 

made and continue to make important 

contributions to the development, strengthening, 

and transparency of TARP programs. 

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. 

   
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

20	 	 MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal	Year	2012	and	2013	Financial	Summary	and	Cumulative	Net	

Income	

OFS’s fiscal year 2013 net income from 

operations of $7.7 billion includes the reported 

net income related to loans, equity investments, 

and other credit programs. For the fiscal year 

ended September 30, 2013, OFS reported net 

subsidy income for six programs –CPP, CDCI, 

TALF, PPIP, AGP, and AIFP. These programs 

collectively reported net subsidy income of $11.9 

billion. Also, for the fiscal year ended 

September 30, 2013, OFS experienced net 

subsidy cost for two programs – AIG and FHA 

Refinance Program totaling $34 million. Fiscal 

year 2013 expenses for the Treasury housing 

programs under TARP of $4.0 billion and 

administrative costs of $248 million bring the 

total reported fiscal year net income from 

operations to $7.7 billion. For the fiscal year 

ended September 30, 2012, the net income from 

operations was $7.7 billion. These net income 

amounts reported in the financial statements 

reflect only transactions through September 30, 

2013 and September 30, 2012, 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, 2013. 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, 2013, 

and cash inflows on the investments in the form 

of dividends, interest or other fees. As of 

September 30, 2013, $30 billion of the $456.6 

billion in purchase and guarantee authority 

remained unused.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS	 	 21

Table 1: TARP Summary1

From TARP Inception through September 30, 2013

(Dollars in billions)

  

Purchase Price

or Guarantee

Amounts

Total $

Disbursed

Investment

Sales and

Repayments

Write‐offs

and

Losses3

Out‐

standing

Balance4

Received

from

Invest‐

ments

Bank Support Programs

Capital Purchase Program5 $   204.9 $   204.9 $   (197.9)6 $   (3.9) $   3.1 $   26.8

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 ‐

Credit Market Programs           

Public‐Private Investment

Program

19.6 18.6 (18.6) ‐  ‐  3.8

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 (47.1) (12.7) 19.9 6.2

American InternationalGroup

Investment Program2 67.8 67.8 (54.3) (13.5) ‐  1.0

Sub‐total for Investment

Programs 418.1 412.1 (358.5) (30.1) 23.5 46.9

Treasury Housing Programs

under TARP

38.57 9.5 N/A N/A N/A N/A

Total for TARP Program $   456.6 $   421.6 $   (358.5) $   (30.1) $   23.5 $  46.9 1

This table shows TARP activity for the period from inception through September 30, 2013, 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

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 14. 3

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

proceeds from sales and repurchases of assets in excess of (less than) cost.” 4 Total disbursements less repayments, write‐offs and losses do not equal the total outstanding balance because the

disbursements for the Treasury housing programs under TARP generally do not require (and OFS does not expect) repayments. 5

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

investment sales, and $6.9 billion of net proceeds in excess of cost is included in Received from Investments. 6

Includes $2.2 billion of SBLF refinancing outside of TARP and CDCI exchanges from CPP of $363 million. 7 Individual obligation amounts are $29.9 billion for the Making Home Affordable Program, $7.6 billion for the Hardest Hit Fund,

and $1.0 billion committed for the FHA Refinance Program.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

22	 	 MANAGEMENT’S DISCUSSION AND ANALYSIS

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, 2013 OFS received a total of 

$24.2 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 2013 and 2012, OFS sold its investments 

in 113 and 40 banks for combined proceeds of 

$1.5 billion and $1.3 billion, respectively, 

through individual public and private auctions. 

These auctions resulted in net proceeds less 

than cost of $455 million and $180 million for 

those investments, 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, 2013, OFS has received $9.5

billion in gross proceeds from the disposition of 

warrants associated with 204 CPP investments, 

both TIP investments, AGP, and AIG, consisting 

of (i) $4.0 billion from issuer repurchases at 

agreed upon values and (ii) $5.5 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 2013 and 2012. 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, 2013 and 2012. The 

Estimated Value of the Investment column 

represents the present value of net cash inflows 

that OFS estimates it will receive from the loans 

and equity investments. These estimates include 

market risk assumptions. For equity securities, 

this amount represents fair value. The total 

difference of $5.6 billion (2013) and $22.9 billion 

(2012) 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.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS	 	 23

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 was possible for TARP 

investments that trade in public markets or are 

closely related to tradable securities. For those 

TARP investments that do not have direct 

analogs in private markets, OFS uses internal 

market-based models to estimate the market 

value of these investments. All future cash flows 

are adjusted for market risk. Further details on 

asset valuation can be found in Note 6 of the 

Financial Statements.

Table 2:  Summary of TARP Direct Loans and Equity Investments

(Dollars in billions)

Program

Outstanding

Balance as

of

September

30, 20131

Estimated

Value of

Investment

as of

September

30, 2013

Outstanding

Balance as

of

September

30, 20121

Estimated

Value of

Investment

as of

September

30, 2012

Bank Support Programs

Capital Purchase Program $   3.1 $   1.8 $   8.7 $   5.7

Community Development

Capital Initiative        0.5           0.4           0.6           0.4   

Credit Market Programs       

Public‐Private Investment

Program 0.0 0.0 9.8 10.8

Term Asset‐Backed

Securities Loan Facility 0.0 0.1 0.1 0.7

     

Other Programs       

Automotive Industry

Financing Program        19.9        15.6        37.2          17.5

American International

Group Investment

Program

0.0 0.0 6.7 5.1

Total $   23.5 $   17.9 $   63.1 $   40.2 1 Before subsidy cost allowance.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

24	 	 MANAGEMENT’S DISCUSSION AND ANALYSIS

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, 2013, provide a 

good illustration of this impact. Table 3 provides 

information on how OFS’s estimated lifetime 

cost of TARP has changed over time. These 

costs for the non-housing programs fluctuate in 

large part due to changes in the market prices of 

common stock for AIG and GM and the 

estimated value of the Ally stock. 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 20095 2010 2011 2012 2013

Bank Support Programs

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

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

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

Community Development Capital

Initiative 0.4 0.3 0.2 0.2 0.1

Credit Market Programs         

Public‐Private Investment Program 1.4 ( 0.7) ( 2.4) ( 2.4) ( 2.7)

Term Asset‐Backed Securities Loan

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

SBA 7(a) Securities Purchase Program N/A ‐‐‐  ‐‐‐  ‐‐‐  ‐‐‐ 

Other Programs          

Automotive Industry Financing

Program 34.5 14.7 23.6 24.3 14.7

American International Group

Investment Program3 56.8 36.9 24.3 15.3 15.2

Subtotal   74.1 32.1 24.6 14.1 2.6

Treasury Housing Programs under

TARP4 50.0 45.6 45.6 45.6 37.7

Total $   124.1 $   77.7 $   70.2 $   59.7 $   40.3 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 14. 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.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS	 	 25

Key	Trends/Factors	Affecting	TARP	Future	Activities	and	Ultimate	

Cost	

This section provides additional TARP 

analytic information and enhanced sensitivity 

analysis focusing on the remaining TARP 

dollars/continued taxpayer exposure and what 

is likely to affect the expected future return. 

As of September 30, 2013, one TARP program 

– the AIFP – has more than $5.0 billion still 

outstanding and remains at the most risk of 

additional taxpayer loss. Going forward, the 

collections or costs from the AIFP and the 

expenditures for Treasury housing programs 

under TARP are expected to most significantly 

affect changes to the lifetime cost of TARP. 

Automotive	Industry	Financing	

Program	

As of September 30, 2013, OFS’s gross AIFP 

investments outstanding in GM and Ally 

Financial totaled $19.9 billion, with an 

estimated value of $15.6 billion. The future 

value of OFS’s investment in GM will depend 

on the market price of GM common stock, 

which is affected by a variety of factors 

specific to the financial condition and results 

of operations of GM as well as factors 

pertaining to the industry and the overall 

economy, such as the competitiveness of U.S. 

manufacturers, both domestically and 

internationally, and macroeconomic conditions 

(unemployment, Gross Domestic Product 

growth, etc.) which affect the overall trends in 

auto sales. The future value of OFS’s 

investment in Ally will depend on industry 

and macroeconomic factors as well as 

company-specific factors, including in 

particular the ability of the company to 

resolve the bankruptcy of its subsidiary, 

Residential Capital, LLC (ResCap), in a timely 

and cost-effective manner, and the proceeds 

realized from the sale of its international 

operations. 

Treasury	Housing	Programs	Under	

TARP	

OFS committed $38.5 billion to fund Treasury 

housing programs under TARP. From 

inception through September 30, 2013, $9.5 

billion has been disbursed under these 

programs, consisting of $6.5 billion for MHA, 

$2.9 billion for the Hardest Hit Fund, and $0.1 

billion for the FHA Refinance Program. If all 

active modifications made as of September 30, 

2013, in association with MHA were to remain 

current and receive incentives for five years, 

OFS estimates that $13.3 billion in incentive 

fees will ultimately be disbursed for MHA 

alone. The program is continuing to enter into 

new modifications as the termination date 

was extended to December 31, 2015. 

Separately, $7.6 billion has been allocated for 

the Hardest Hit Fund and $1.0 billion for the 

FHA Refinance Program. 

Sensitivity	Analysis		

The ultimate value of TARP investments will 

only be known in time. Realized values will 

vary from current estimates in part because 

economic and financial conditions will change. 

Many TARP investments do not have readily 

observable values and their values can only be 

estimated by OFS. 

Sensitivity analysis is one way to get some 

feel for the degree of uncertainty around the 

OFS estimates. In the analysis reported here, 

OFS focuses on the AIFP as it is the only 

remaining program with outstanding 

investments in excess of $5.0 billion. 

AIFP	Analysis	

The most important inputs to the valuation of 

OFS’s outstanding investments under the 

AIFP are the market price of New GM 

common stock and the change in the 

estimated value of Ally Financial common 

stock, which is based on the price paid by 

private investors in November, 2013. Table 4 

shows the change in estimated value of OFS 

outstanding AIFP investments based on a 10 

percent increase and 10 percent decrease in 

the trading price of the New GM common 

stock and separately a 10 percent increase 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

26	 	 MANAGEMENT’S DISCUSSION AND ANALYSIS

and 10 percent decrease in the estimated 

value of the Ally Financial common stock. 

Figure A shows that the GM securities have 

recently been trading within the range used in 

the analysis as well as outside of this range, 

illustrating the uncertainty around the cost 

estimates. 

Figure A shows the daily closing price of the 

New GM common stock during fiscal years 

2012 and 2013. The closing price for 

September 30, 2013 was $35.97. The dashed 

lines represent the high and low price used in 

the sensitivity analysis. 

0

5

10

15

20

25

30

35

40

45

$ Price

Figure A: Daily Price of GM Common Stock

Daily Closing Price Increase 10% Decrease 10%

(Dollars in billions)

September 30, 2013 

Reported Value for 

AIFP

Effect of 10% 

Increase

Effect of 10% 

Decrease

Impact of GM on AIFP $15.60 $15.95 $15.25

% change from current N/A 2.24% (2.24)%

Impact of Ally (formerly 

GMAC) on AIFP $15.60 $16.79 $14.40

% change from current N/A 7.66% (7.66)%

Table 4: Impact on AIFP Valuation
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013 

MANAGEMENT’S DISCUSSION AND ANALYSIS 27

Systems, Controls, and Legal Compliance 

MANAGEMENT ASSURANCE STATEMENT 

The Office of Financial Stability‘s (OFS) management is responsible for establishing 

maintaining effective internal control and financial management systems that meet the 

Federal Managers‘ Financial Integrity Act (FMFIA), 31 U.S.C. 3512(c),(d). OFS 

evaluated its management controls, internal controls over financial reporting, and 

 the federal financial systems standards. As part of the evaluation process, we

the results of extensive documentation, assessment and testing of controls across 

OFS, as well the results of independent audits. We conducted our reviews of internal controls 

in with FMFIA and Office of Management and Budget (OMB) Circular 

 

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

described below, taken as a whole, were achieved as of September Specifically, 

assurance is provided relative to Section 2 (internal controls) and 4 (systems controls)

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

compliance with the requirements imposed by the Federal Financial Management 

Act

OFS‘ internal controls are designed to meet the management objectives established by 

and listed 

(a) Programs achieve their intended 

(b) Resources are used consistent with overall 

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

(d) Laws and regulations are 

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

(f) Performance information is

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

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

reasonable levels; 

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

standards, i.e., FMFIA Section 4 and 

In addition, OFS management conducted its assessment effectiveness of internal 

over financial reporting, which includes safeguarding of assets and compliance with 

laws and regulations, in accordance with OMB Circular A-123,

for Internal Control, Appendix A, Internal Control over Financial Reporting. Based on

results of this evaluation, OFS provides unqualified assurance that internal control over 

reporting is appropriately designed and operating effectively as of September 30, 2013,

with related material weaknesses 

Sincerely, 

 

 Timothy G. Massad 

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

28	 	 MANAGEMENT’S DISCUSSION AND ANALYSIS

Internal	Control	Program		

OFS continues to have a high performing 

internal control program in compliance with 

the Federal Managers’ Financial Integrity Act 

(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 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 

assurance 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 since fiscal year 2009, its 

first full year of operation. OFS continues to 

refine its internal controls assessment process 

to ensure that management can identify risks 

and deficiencies and make timely corrective 

actions. The OFS fiscal year 2013 selfassessment of its system of internal controls 

did not identify any significant deficiencies or 

material weaknesses. 

Information	Technology	Systems	

In fiscal year 2013, OFS continued to utilize 

and improve the Core Investment Transaction 

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

accounting translation engine. OFS finetuned several standardized management 

reports from CITF to improve their usefulness 

to management decision-making and added 

functionality to capture key data elements for 

use in preparing the financial statements and 

associated notes. 

Other financially relevant systems are 

supported by financial agents, which provide 

services to OFS. The financial agency 

agreements maintained by the Treasury 

Office of the Fiscal Assistant Secretary in 

support of OFS require financial agents to 

design and implement suitably robust security 

plans and internal control programs, to be 

reviewed and approved by OFS at least 

annually. 

In addition, OFS utilizes financial systems 

maintained by Treasury Departmental Offices 

and various Treasury bureaus. These systems 

are in compliance with federal financial 

management systems standards and undergo 

regular independent audits. 

Compliance	with	the	Improper	

Payments	Elimination	and	

Recovery	Act	(IPERA)	

The Improper Payments Elimination and 

Recovery Act of 2010 (IPERA) requires 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS	 	 29

agencies to review their programs and 

activities annually to identify those 

susceptible to significant improper payments. 

IPERA significantly increases agency 

payment recapture efforts by requiring 

reviews of all programs with annual payments 

of $1 million or more, if cost-effective. IPERA 

requires agencies to report information on 

their significant improper payments and 

recapture audit programs to the President and 

Congress annually. 

The elimination of improper payments is a 

major focus of OFS senior management. 

Managers are held accountable for developing 

and strengthening financial management 

controls to detect and prevent improper 

payments, and thereby better safeguard 

taxpayer dollars. OFS carried out its fiscal 

year 2013 IPERA review per Treasury-wide 

guidance and did not assess any programs or 

activities as susceptible to significant 

erroneous 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 2012 and again in fiscal year 

2013, OFS concluded that a payment 

recapture audit was not cost-effective as all 

programs were deemed to have a low risk of 

significant improper payments. For many 

programs, OFS already has procedures in 

place to review payments for completeness 

and accuracy prior to and after disbursement. 

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. 

On April 12, 2012, OMB issued Memorandum 

M-12-11 “Reducing Improper Payments 

through the ‘Do Not Pay List,’” based on a 

Directive provided by the President in June 

2010. The President directed agencies to 

“review current pre-payment and pre-award 

procedures and ensure that a thorough review 

of available databases with relevant 

information on eligibility occurs before the 

release of any Federal funds.” In order to 

achieve this mission, the President directed 

the creation of a single point of entry through 

which agencies would access relevant data 

before determining eligibility for Federal 

funding commonly referred to as the “Do Not 

Pay List.” Prior to the release of this 

Directive, OFS already had strong controls in 

place to help ensure payment eligibility. 

During fiscal year 2013, OFS implemented the 

“Do Not Pay List” solution to monitor 

administrative disbursements and, to date; 

the “Do Not Pay” Business Center has not 

identified any potential OFS improper 

payments. Going forward, OFS will, as 

appropriate, integrate additional “Do Not Pay 

List” functionality into its operations. 

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 winddown, 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. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

30	 	 MANAGEMENT’S DISCUSSION AND ANALYSIS

• 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. 

• As OFS programs conclude and 

staff continues to decrease, OFS 

plans to streamline the number 

and depth of policies and 

procedures to make them more 

efficient and reduce the 

maintenance burden. OFS will 

manage this process through the 

SAT to ensure that any resulting 

risk is minimal and controlled. 

• OFS has developed information 

technology capabilities to increase 

efficiency and automate manual 

processes. Continuing to leverage 

existing information technology 

assets will help reduce risks 

associated with human error. In 

fiscal year 2014, OFS will work to 

right-size the information 

technology environment to better 

align with the decreasing level of 

activity due to the ongoing wind 

down of OFS programs. 

 

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. 
MESSAGE FROM THE CHIEF FINANCIAL OFFICER

AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

31
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AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

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, 2013, and 

2012; 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, 

2013, 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. 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, 2013, 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 

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 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

36	 	 AUDITOR’S REPORT

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.4

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, 2013, and 2012, 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. 

Emphasis of Matters 

Valuation of TARP’s Direct Loans, Equity Investments, and Asset Guarantee Program 

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

direct loans, equity investments, and asset guarantee program is based on estimates using 

economic and financial credit subsidy models. The estimates use entity-specific as well as 

relevant market data as the basis for assumptions about future performance, and incorporate an 

4

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 2013

AUDITOR’S REPORT	 	 37

adjustment for market risk to reflect the variability around any unexpected losses. In valuing the 

direct loans, the equity investments, and the asset guarantee program, OFS management 

considered and selected assumptions and data that it believed provided a reasonable basis for 

the estimated subsidy allowance and related subsidy cost or income reported in the financial 

statements.5 However, there are numerous factors that affect these assumptions and estimates, 

which are inherently subject to substantial uncertainty arising from the likelihood of future 

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

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

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

guarantee program as of September 30, 2013, and 2012 (which totaled $17.9 billion and $41.2 

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.6

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. According to OFS 

officials, 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 

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

reporting for TARP as of September 30, 2013, based on criteria established under FMFIA. 

During our fiscal year 2013 audit, we identified deficiencies in OFS’s internal control over 

financial reporting that we do not consider to be material weaknesses or significant deficiencies.7 

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

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

5

The subsidy cost or income is composed of (1) the change in the subsidy cost allowance, net of write-offs; (2) net 

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

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

change in the estimated discounted net cash flows related to other credit programs (asset guarantee program and 

Federal Housing Administration refinance program). 

6

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. 

7

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

material weakness, yet important enough to merit attention by those charged with governance. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

38	 	 AUDITOR’S REPORT

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.8 

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.9 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. 

Management’s Responsibility 

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

agreements applicable to OFS. 

8

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

Resources” that are included with the financial statements. 

9

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

auditor’s report. 
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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, 

2013 and 2012. 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 years ended 

September 30, 2013 and 2012. 

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 years ended September 30, 2013 and 2012. 

The ending balances of both components of net 

position are also reported on the Balance Sheet. 

The Statement of Budgetary Resources provides 

information about funding and availability of 

budgetary resources and the status of those 

resources for the years ended September 30, 

2013 and 2012. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

FINANCIAL STATEMENTS		 	 43

Dollars in Millions 2013 2012

ASSETS

Intragovernmental Assets:

 Fund Balance with Treasury (Note 3) 53,240 $ 75,495 $ 

 Asset Guarantee Program (Note 6) - 967 

 Other 1 1 

Total Intragovernmental Assets 53,241 76,463

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

Direct Loans and Equity Investments, Net (Note 6) 17,869 40,231

Total Assets $ 116,744 71,160 $ 

LIABILITIES

Intragovernmental Liabilities:

 Accounts Payable and Other Liabilities 1 $ 2 $ 

 Due to the General Fund (Note 7) 8,139 9,714

 Principal Payable to the Bureau of the Fiscal Service (Note 8) 11,949 52,828 

Total Intragovernmental Liabilities 20,089 62,544

Accounts Payable and Other Liabilities 87 87 

Liabilities for Treasury Housing Programs Under TARP:

 FHA-Refinance Program (Notes 5 and 6) 9 7 

 Making Home Affordable Program and Hardest Hit Fund (Note 5) 263 241 

Total Liabilities $ 62,879 20,448 $ 

Commitments and Contingencies (Note 9) - - 

NET POSITION 

 Unexpended Appropriations 50,663 $ 54,572 $ 

 Cumulative Results of Operations 49 (707) 

Total Net Position $ 53,865 50,712 $ 

Total Liabilities and Net Position 71,160 $ 116,744 $ 

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, 2013 and 2012

   
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

44		 	 	 	 	 	 	 	 	 	 FINANCIAL STATEMENTS

Dollars in Millions 2013 2012

Gross Cost of (Income from) Operations:

 Program Subsidy Cost (Income) (Note 6)

 Direct Loan and Equity Investment Programs (11,794) $ (10,778) $ 

 Other Credit Programs (201) (116) 

 Total Program Subsidy Cost (Income) (11,910) (10,979) 

 Interest Expense on Borrowings from the Bureau of the Fiscal Service (Note 10) 2,252 856 

 Treasury Housing Programs Under TARP (Note 5) 2,963 3,961 

 Administrative Cost 268 248 

Total Gross Cost of (Income from) Operations (6,845) (5,496) 

Earned Revenue:

 Dividend and Interest Income - Programs (Note 6) (1,292) (2,733) 

 Interest Income on Financing Account (Note 10) (235) (605) 

 Subsidy Allowance Amortization (Note 10) 671 1,086 

Total Earned Revenue (2,252) (856) 

Total Net Cost of (Income from) Operations (7,701) $ (7,748) $ 

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

For the Years Ended September 30, 2013 and 2012 

STATEMENT	OF	NET	COST

Office of Financial Stability - Troubled Asset Relief Program

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

FORECLOSURES AND PRESERVE HOME OWNERSHIP
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

FINANCIAL STATEMENTS		 	 	 	 	 	 	 	 	 	 	 45

Dollars in Millions

Unexpended 

Appropriations

Cumulative 

Results of 

Operations 

Unexpended 

Appropriations

Cumulative 

Results of 

Operations 

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

Budgetary Financing Sources

 Appropriations Received 788 - 27,593 - 

 Appropriations Used (4,697) 4,697 (30,565) 30,565 

Other Financing Sources (11,642) - - (11,184) 

Total Financing Sources (6,945) (3,909) (2,972) 19,381 

Net (Cost of) Income from Operations 7,701 - - 7,748 

Net Change 756 (3,909) (2,972) 27,129 

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

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

2012

Office of Financial Stability - Troubled Asset Relief Program

STATEMENT	OF	CHANGES	IN	NET	POSITION

2013

For the Years Ended September 30, 2013 and 2012 
THE DEPARTMENT OF THE TREASURY | 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 14,350 $ 17,631 $ 14,166 $ 21,143 $ 

 Recoveries of Prior-Year Unpaid Obligations 7,246 4,941 146 6,114 

 Borrowing Authority Withdrawn - (2,611) - (5,832) 

 Actual Repayments of Debt, Prior-Year Balances - (17,738) - (19,900) 

Unobligated Balance from Prior-Year Budget Authority, Net 21,596 2,223 14,312 1,525 

Appropriations - 788 27,593 - 

Borrowing Authority - 208 - 2,659 

Spending Authority from Offsetting Collections 1 13,131 - 21,695 

TOTAL BUDGETARY RESOURCES (Note 11) 22,385 $ 15,562 $ 41,905 $ 25,879 $ 

STATUS OF BUDGETARY RESOURCES

Obligations Incurred 779 $ 14,100 $ 27,555 $ 8,248 $ 

Unobligated Balance:

 Apportioned 11 668 41 3,946

 Unapportioned 21,595 794 14,309 13,685

Total Unobligated Balance 21,606 1,462 14,350 17,631

TOTAL STATUS OF BUDGETARY RESOURCES 22,385 $ 15,562 $ 41,905 $ 25,879 $ 

CHANGE IN OBLIGATED BALANCES

Unpaid Obligations:

 Unpaid Obligations Brought Forward, October 1 40,548 $ 5,926 $ 43,814 $ 13,158 $ 

 Obligations Incurred 779 14,100 27,555 8,248

 Gross Outlays (4,675) (14,092) (30,675) (9,366)

 Recoveries of Prior-Year Unpaid Obligations (7,246) (4,941) (146) (6,114)

Unpaid Obligations, End of Year 993 29,406 40,548 5,926 

Uncollected Payments from Federal Sources:

 Uncollected Payments Brought Forward, October 1 - $ (349) $ - $ (496) $ 

 Change in Uncollected Payments - 123 - 147 

Uncollected Payments from Federal Sources, End of Year (226) - - (349) 

Obligated Balance, Net, End of Year $ 767 29,406 $ 40,548 $ 5,577 $ 

OBLIGATED BALANCES

 (Net of Unpaid Obligations and Uncollected Payments Above)

Obligated Balance, Net, Brought Forward, October 1 40,548 $ 5,577 $ 43,814 $ 12,662 $ 

Obligated Balance, Net, End of Year $ 767 29,406 $ 40,548 $ 5,577 $ 

BUDGET AUTHORITY AND OUTLAYS, NET

 Budget Authority, Gross 789 $ 13,339 $ 27,593 $ 24,354 $ 

 Actual Offsetting Collections (1) (36,604) - (81,269) 

 Change in Uncollected Customer Payments from Federal Sources - 123 - 147 

BUDGET AUTHORITY, NET 788 $ (23,142) $ 27,593 $ (56,768) $ 

 Gross Outlays 4,675 $ 14,092 $ 30,675 $ 9,366 $ 

 Actual Offsetting Collections (1) (36,604) - (81,269) 

 Net Outlays 4,674 (22,512) 30,675 (71,903) 

 Distributed Offsetting Receipts (13,218) - (6,063) - 

AGENCY OUTLAYS, NET (8,544) $ (22,512) $ 24,612 $ (71,903) $ 

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

2013 2012

Office of Financial Stability - Troubled Asset Relief Program

STATEMENT	OF	BUDGETARY	RESOURCES

For the Years Ended September 30, 2013 and 2012 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

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) $456.6 billion as of September 30, 

2013 and $467.0 billion as of September 30, 2012. 

The reduction between 2013 and 2012 reflects the 

deobligation of unused funds in certain programs. 

The TARP developed the following programs: the 

Capital Purchase Program (CPP); the Community 

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

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

Automotive Industry Financing Program (AIFP); the 

American International Group, Inc. (AIG) Investment 

Program (formerly known as the Systemically 

Significant Failing Institutions Program); the Asset 

Guarantee Program (AGP); and the Treasury Housing 

Programs Under TARP (see Notes 5 and 6 for details 

regarding all of these programs). 

While these financial statements reflect the activity 

of the OFS in executing its programs, including 

providing resources to various entities to help 

stabilize the financial markets, they do not include 

the assets, liabilities, or results of operations of 

commercial entities in which the OFS has a 

significant equity interest. Through the purchase of 

troubled assets, the OFS 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 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)4. SFFAC No. 2, paragraphs 43 and 44, 

                                                            

4 During	fiscal	year	2013,	the	OFS	held	investments	in	SPVs	

under	the	TALF	and	PPIP	programs;	in	fiscal	year	2012,	the	OFS	

held	investments	in	SPVs	under	the	TALF,	PPIP	and	AIG	

Investment	Programs.	
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

48 	 	 NOTES TO THE FINANCIAL STATEMENTS

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 

investments are included in Notes 2 and 6; see 

PPIP, TALF and AIG Investment Program. 

The EESA established the OFS within the Office of 

Domestic Finance of the U. S. Department of the 

Treasury (Treasury) 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 2013

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 and the Asset Guarantee 

Program receivable tabulated by the Level of 

Observation of the inputs used in the valuation 

process. Level 1 assets are measured using quoted 

market prices for identical assets. Level 2 assets are 

measured using observable market inputs other 

than direct market quotes. Level 3 assets are 

measured using unobservable inputs. 

The OFS uses the present value accounting concepts 

embedded in SFFAS No. 2, Accounting for Direct 

Loans and Loan Guarantees, as amended (SFFAS 

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

equity investments in Levels 2 and 3. The OFS 

concluded that some of the equity investments, such 

as preferred stock, were similar to direct loans since 

there was a stated rate and a redemption feature 

which, if elected, required repayment of the amount 

invested. Furthermore, consideration of market risk 

provided a basis to arrive at a fair value 

measurement. Therefore, the OFS concluded that 

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

be followed for reporting and disclosure 

requirements of its equity investments. 

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. Outstanding asset 

guarantees are recognized as liabilities or 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. 

 

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 DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

50 		 	 	 	 	 	 	 	 NOTES TO THE FINANCIAL STATEMENTS

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, the 

Asset Guarantee Program and the Liabilities for 

Treasury Housing Programs Under TARP on the 

Balance Sheet, and related Program Subsidy Cost 

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

The most significant differences between actual 

results and estimates may occur in the valuation of 

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 and Asset 

Guarantee Program line items, as of fiscal year 

ends, primarily reflect relatively illiquid assets with 

values that are sensitive to future economic 

conditions and other assumptions. Estimates are 

also prepared for the FHA-Refinance Program to 

determine the liability for losses. 

Credit Reform Accounting 

The 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 

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 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

NOTES TO THE FINANCIAL STATEMENTS		 	 	 	 	 	 	 	 	 	51

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 

with no further chance of recovery or 

extinguishment of a debt instrument by agreement. 

Under SFFAS No. 2, write-offs do not affect the 

Statement of Net Cost because the written-off asset 

is fully reserved. Therefore, the write-off removes 

the asset balance and the associated subsidy 

allowance. 

Asset Guarantee Program 

During fiscal year 2010, the OFS and the Federal 

Deposit Insurance Corporation (FDIC) entered into 

a termination agreement with the Asset Guarantee 

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

the Intragovernmental Asset line item, Asset 

Guarantee Program, remaining on the Balance 

Sheet at September 30, 2012 was the estimated 

value of certain Citigroup trust preferred securities 

including dividends collected, held by the FDIC for 

the benefit of OFS. Under the termination 

agreement, the FDIC transferred those securities to 

the OFS, less any losses on FDIC’s guarantee of 

Citigroup debt, in fiscal year 2013. OFS then sold 

the securities. 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 

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, 2013 and 2012. 

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 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

52 		 	 	 	 	 	 	 	 NOTES TO THE FINANCIAL STATEMENTS

credit programs as of September 30, 2013 and 2012. 

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)(formerly Principal Payable to the 

Bureau of Public Debt; the Department of the 

Treasury combined the functions of the Bureau of 

Public Debt and the Financial Management Service 

into the Fiscal Service on October 7, 2012) 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, 2013 and 

2012, 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 in 

budgetary appropriated funds as of September 30, 

2013 and 2012.

Cumulative Results of Operations 

Cumulative Results of Operations, presented on the 

Balance Sheet and on the Statement of Changes in 

Net Position, represents the net results of the OFS 

operations not funded by appropriations or some 

other source, such as borrowing authority, from 

inception through fiscal year end. At September 30, 

2012, OFS had $755 million of unfunded upward 

reestimates that resulted in OFS reporting negative 

Cumulative Results of Operations. These 

unfunded upward reestimates were funded in fiscal 

year 2013. Cumulative Results of Operations in 

2013 and 2012 also included $50 million reported as 

Cash on Deposit for Housing Program on the 

Balance Sheet, see Note 4. 

Other Financing Sources 

The Other Financing Sources line in the Statement 

of Changes in Net Position for each year consists 

primarily of downward reestimates. Each program’s 

reestimates, upward and downward, are recorded 

separately, not netted together. 

Leave 

A liability for the OFS employees’ annual leave is 

accrued as it is earned and reduced as leave is 

taken. Each year the balance of accrued annual 

leave is adjusted to reflect current pay rates as well 

as forfeited “use or lose” leave. Amounts are 

unfunded to the extent current or prior year 

appropriations are not available to fund annual 

leave earned but not taken. Sick leave and other 

types of non-vested leave are expensed as taken. 

The liability is included in the Balance Sheet 

amount for Accounts Payable and Other Liabilities. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

NOTES TO THE FINANCIAL STATEMENTS		 	 	 	 	 	 	 	 	 	53

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 

The nature of related parties and descriptions of 

related party transactions are discussed within 

Notes 1 and 6. 

NOTE	3.	FUND	BALANCES	WITH	TREASURY	

Fund Balances with Treasury, by fund type and status, as of September 30, 2013 and 2012, are presented in 

the following table. 

(Dollars in Millions) 2013 2012

Fund Balances:

 General Funds 36,630 $ 40,517 $ 

 Program Funds 14,382 14,382 

 Financing Funds 2,228 20,596 

Total Fund Balances $ 75,495 53,240 $ 

Status of Fund Balances:

 Unobligated Balances

 Available 678 3,987 

 Unavailable 22,389 27,994 

 Obligated Balances Not Yet Disbursed 30,173 43,514 

Total Status of Fund Balances $ 75,495 53,240 $ 

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

54 		 	 	 	 	 	 	 	 NOTES TO THE FINANCIAL STATEMENTS

Collections relating to the AGP are deposited in the 

Troubled Assets Insurance Financing Fund (which is 

within OFS Financing Funds balance) as required 

by the EESA Section 102(d). In fiscal year 2013 the 

TAIFF was closed because the AGP program was 

completed and investments sold. In fiscal year 2012 

the TAIFF balance was reduced for AGP-related 

downward reestimates, repayments of AGP-related 

debt and interest payments on debt due to the 

Bureau of the Public Debt. 

NOTE	4.		CASH	ON	DEPOSIT	FOR	HOUSING	PROGRAM	

As of September 30, 2013 and 2012, 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. 

NOTE	5.		TREASURY	HOUSING	PROGRAMS	UNDER	TARP	

Fiscal years 2013 and 2012 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 Modification Program (HAMP)

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

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

of modifying qualified first liens, conditional on borrower performance.

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

with a first lien HAMP modification.

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

price declines.

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

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

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

sales and deeds-in-lieu.

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

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

require any payments from OFS. 

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

guaranteed loans offered by the FHA, VA or USDA.

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

in conjunction with a HAMP modification.

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

servicers participate in the FHA Refinance Program.

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

HHF Provides targeted aid to 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.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

NOTES TO THE FINANCIAL STATEMENTS		 	 	 	 	 	 	 	 	 	55

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), the U. S. 

Department of Agriculture (USDA), and the U. S. 

Department of Veterans Affairs (VA). 

In fiscal year 2013, the deadline for applications 

under the MHA programs was extended from 

December 31, 2013, to December 31, 2015. 

In fiscal year 2012, the OFS made additional 

changes to MHA programs to provide relief to 

more homeowners and accelerate the housing 

market recovery. HAMP program guidelines were 

expanded through the introduction of a secondlevel evaluation that expands the population of 

homeowners eligible for the programs, including 

certain rental properties and vacancies, creating a 

flexible debt-to-income ratio band and including 

certain previous HAMP participants who may 

have lost good standing. Finally, investor 

incentives for PRA were tripled on first liens and 

doubled on second liens, and servicer incentives 

were restructured to promote early engagement 

with the borrowers. 

 

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 consist of Alabama, 

Arizona, California, Florida, Georgia, Illinois, 

Indiana, Kentucky, Michigan, Mississippi, 

Nevada, New Jersey, North Carolina, Ohio, 

Oregon, Rhode Island, South Carolina, Tennessee, 

as well as the District of Columbia. Approved 

states develop and roll out their own programs 

with timing and types of programs offered 

targeted to address the specific needs and 

economic conditions of their state. States have 

until December 31, 2017 to enter into agreements 

with borrowers. 

In fiscal year 2013, the state HFAs continued to 

adapt their programs to best meet borrower needs 

in evolving economic and housing markets. A 

total of seven HFAs now offer principal reduction 

to enable a loan modification, refinance, or recast, 

and other states are strongly considering this 

model. Florida, Illinois and Ohio have utilized 

HHF resources to purchase notes and modify the 

underlying loan terms, and Oregon offers 

refinancing options to underwater homeowners 

ineligible for other options. Additionally, 

Michigan has elected to designate a portion of its 

HHF allocation for blight elimination activities 

that target vacant and abandoned urban 

residences. Ohio has submitted a proposal to do 

the same, and other states are contemplating this 

approach to foreclosure prevention. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

56 		 	 	 	 	 	 	 	 NOTES TO THE FINANCIAL STATEMENTS

In fiscal year 2012, the state HFAs made 

substantial eligibility changes to existing 

programs (e.g. Florida, New Jersey) and 

significantly modified principal reduction 

programs (e.g. Arizona, California and Nevada) 

incorporating curtailments (i.e. unmatched 

principal reduction) that can be applied to all 

eligible loans including GSE loans that 

historically have not participated in principal 

reduction programs. 

FHA-Refinance Program 

The FHA-Refinance Program is a joint initiative 

with the 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, 2013, 3,015 loans had 

been refinanced. As of September 30, 2012, 1,774 

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 claim 

payments had been made as of September 30, 

2012. See Notes 4 and 6 for further details about 

the deposit and the program. OFS paid $2 million 

each year in fiscal years 2013 and 2012 to 

maintain the letter of credit. 

The table below recaps housing program total 

commitments as of September 30, 2013, and 

payments and accruals as of September 30, 2013 

and 2012. 

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, 20131 2013 2012 2013 2012

MHA $                    29,867 $                       2,541 $                   2,202 $           263 $          241

HFA Hardest Hit Fund                          7,600                          1,396                         ‐ 861                ‐              

FHA ‐ Refinance2                          1,025                                  2                              ‐ 2                ‐              

Totals 38,492 $                    $                       3,939 $                   3,065 $           263 $          241

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.

1

Total commitments represent amounts obligated to support all of OFS's Housing programs.  This differs from the $28,747 outstanding

commitments as of September 30, 2013, which are the remaining funds available to be spent.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

NOTES TO THE FINANCIAL STATEMENTS		 	 	 	 	 	 	 	 	 	57

NOTE	6.		TROUBLED	ASSET	RELIEF	PROGRAM	DIRECT	LOANS	AND	

EQUITY	INVESTMENTS,	NET	AND	OTHER	CREDIT	PROGRAMS	

The OFS administers a number of programs 

designed to help stabilize the financial system and 

restore the flow of credit to consumers and 

businesses. The OFS made direct loans and equity 

investments under TARP. The OFS also entered 

into other credit programs, which consist of an asset 

guarantee program and a loss-sharing program 

under the TARP. The table below recaps OFS 

programs by title and type: 

` Program 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 

 SBA 7(a) Security Purchase Program Direct Loan

 Automotive Industry Financing Program Equity Investment and Direct Loan

 American International Group, Inc. Investment Program Equity Investment

Other Credit Programs

 Asset Guarantee Program Asset Guarantee

 FHA-Refinance Program Loss-sharing Program with FHA

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 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

58 		 	 	 	 	 	 	 	 NOTES TO THE FINANCIAL STATEMENTS

shares to financial institutions that were acquiring 

the QFIs that have issued the preferred shares. 

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 2, these transactions are considered 

workouts and not modifications. The changes in cost 

associated with these transactions are captured in 

the year-end reestimates. 

During fiscal year 2012, OFS elected to sell selected 

CPP investments to the public in auction sales. 

Because auction sales were not considered in the 

budget formulation estimate for the CPP program, 

OFS recorded a modification increasing the cost of 

the program by $973 million. During fiscal year 

2013, OFS continued auction sales of selected 

remaining CPP investments. 

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. 

In fiscal year 2012, OFS sold 40 CPP investments in 

six separate auctions for total net proceeds of $1.3 

billion. These auction sales resulted in net proceeds 

less than cost of $180 million. In addition, other 

sales and redemptions for 56 institutions resulted in 

net proceeds less than cost of $105 million. 

During fiscal year 2013, one CPP institution was 

written off for $104 million. OFS originally invested 

$110 million and recovered $6 million. There were 

no write-offs in fiscal year 2012. During fiscal year 

2013, seven institutions, in which OFS had invested 

$137 million, were either closed by their regulators 

or declared bankruptcy. During fiscal year 2012, six 

institutions, in which OFS had invested $51 million, 

were either closed by their regulators or declared 

bankruptcy. The OFS does not anticipate recovery 

on these investments and therefore the values of 

these investments are reflected at zero as of 

September 30, 2013 and 2012. The ultimate amount 

received, if any, from the investments in institutions 

that filed for bankruptcy and institutions closed by 

regulators will depend primarily on the outcome of 

the bankruptcy proceedings and of each institution’s 

receivership. 

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

2013 and 2012:

CPP Participating Institutions

2013 2012

Number of Institutions Funded 707 707 

Institutions Paid in Full, Merged or Investments Sold (407) (234) 

Institutions Transferred to CDCI (28) (28) 

Institutions Refinanced to SBLF (137) (137) 

Institutions Written Off After Bankruptcy or Receivership (3) (2) 

Number of Institutions with Outstanding OFS Investments 132 306

Institutions in Bankruptcy or Receivership (24) (17) 

Number of CPP Institutions Valued at Year-End 289 108 

Of the Institutions Valued, Number that Have Missed One or More 

Dividend Payments 157 76 

CPP Investments

(Dollars in Millions) Fiscal Year 2013 Fiscal Year 2012

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

Repayments and Sales of Investments (4,752) (8,223) 

Write-Offs - (104) 

Losses from Sales and Repurchases of Assets in Excess of Cost (665) (412) 

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

Interest and Dividend Collections 262 $ 572 $ 

Net Proceeds from Sales and Repurchases of Assets Less Than Cost (493) $ (285) $ 

Cumulative as of September 30,

 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

NOTES TO THE FINANCIAL STATEMENTS		 	 	 	 	 	 	 	 	 	59

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 2013, one CDCI institution, in 

which the OFS invested $7 million, was written off; 

there were no write-offs in fiscal year 2012. During 

fiscal year 2012, this CDCI institution was closed by 

its regulator. The OFS did not anticipate recovery 

on the investment and therefore its value was 

reflected at zero as of September 30, 2012. 

In fiscal year 2013, OFS received $86 million in 

repayments and $11 million in dividends and 

interest from its CDCI investments. In fiscal year 

2012, OFS received $3 million in repayments and 

$11 million in dividends and interest from its CDCI 

investments. 

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 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

60 		 	 	 	 	 	 	 	 NOTES TO THE FINANCIAL STATEMENTS

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. As of September 30, 2012, the PPIFs’ 

portfolios were comprised of approximately 74 

percent RMBS and 26 percent CMBS. 

OFS made no disbursements to PPIFs during fiscal 

year 2013. During fiscal year 2012, OFS disbursed 

$245 million as equity investments and $803 million 

as loans to PPIFs. 

In fiscal year 2013, the six remaining PPIFs 

liquidated investments and fully repaid investors, 

including OFS. 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. During fiscal year 2012, 

the OFS received $124 million in interest on loans 

and $5.6 billion in loan principal repayments from 

the PPIFs and received $3.2 billion in equity 

distributions, of which $1.3 billion was recognized as 

investment income, $223 million as net proceeds in 

excess of cost and $1.7 billion as a reduction of the 

gross investment outstanding. One PPIF 

partnership fully repaid its investors, including 

OFS, in fiscal year 2012. Another had repaid all 

equity capital in fiscal year 2012 and distributed 

additional funds and ceased operations early in 

fiscal year 2013. 

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 represents additional proceeds expected 

upon final liquidation of remaining partnerships. 

The legal commitments to disburse up to $1.8 billion 

in additional loans to remaining PPIFs as of 

September 30, 2012 were canceled in 2013 since all 

PPIFs had ceased operations. Commitments of $984 

million to disburse additional equity to PPIFs will 

remain until all distributions have been received 

from PPIFs and all PPIF liabilities have been 

settled, although a requirement for additional 

disbursement by OFS is highly unlikely. 

As of September 30, 2012, OFS had equity 

investments in six PPIFs outstanding of $4.1 billion 

and loans outstanding of $5.7 billion for a total of 

$9.8 billion. These investments and loans were 

valued at $10.8 billion. 

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, 2013, $101 million of loans due to the 

FRBNY remained outstanding. As of September 30, 

2012, approximately $1.5 billion of loans due to the 

FRBNY remained outstanding. 

As part of the program, the FRBNY created the 

TALF, LLC, a special purpose vehicle that agreed to 

purchase from the FRBNY any collateral it has 

seized due to borrower default. The TALF, LLC 

would fund purchases from the accumulation of 

monthly fees paid by the FRBNY as compensation 

for the agreement. Only if the TALF, LLC had 

insufficient funds to purchase the collateral did the 

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

LLC. In July 2010, the OFS’s commitment was 

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

commitment was reduced from $4.3 billion 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 2013, a modification to the terms of the 

legal agreement resulted in $55 million in subsidy 

income for the program. The modification allowed 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

NOTES TO THE FINANCIAL STATEMENTS		 	 	 	 	 	 	 	 	 	61

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, 2013 and 2012, no TALF loans 

were in default and consequently no collateral was 

purchased by the TALF, LLC. 

SBA 7(a) Securities Purchase Program 

In March 2010, the OFS began the purchase of 

securities backed by Small Business Administration 

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

Credit for Small Business Initiative. Under this 

program OFS purchased 7(a) Securities 

collateralized with 7(a) loans (these loans are 

guaranteed by the full faith and credit of the United 

States Government) packaged on or after July 1, 

2008. In May 2011, OFS began selling its securities 

to investors. Sales were completed in January of 

2012 and the program closed. 

As of September 30, 2013 and 2012, the OFS held no 

investment in SBA 7(a) securities. The OFS 

invested a total of $367 million (excluding purchased 

accrued interest) and received $363 million in 

principal payments and sales proceeds, as well as 

$13 million in interest on its securities over the 

course of the program. During fiscal year 2012, the 

OFS sold its remaining SBA securities and received 

proceeds of $127 million, including interest. 

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-inpossession (DIP) financing while Old GM was in 

bankruptcy. As of September 30, 2011, 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 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. 

During fiscal year 2012, OFS did not sell any of its 

New GM common stock shares. 

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. At September 30, 2012, the 

OFS held 500 million shares, approximately 32 

percent of the common stock of New GM 

outstanding, with a market value of $11.4 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 $22 

million and $26 million in fiscal years 2013 and 

2012, respectively, on the administrative claim, and 

the outstanding balance at September 30, 2013 was 

$827 million. OFS does not expect to recover any 

significant additional proceeds from this claim. 

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 writeoffs, 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. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

62 		 	 	 	 	 	 	 	 NOTES TO THE FINANCIAL STATEMENTS

Nothing was received from the trust in fiscal year 

2013; $9 million was received during fiscal year 

2012. The underlying loan balance was 

extinguished in the Chrysler bankruptcy. 

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 2012, OFS had 

received $5.1 billion in sales proceeds and dividends 

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 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. OFS received an additional $725 

million for the elimination of certain rights under 

the original agreement. This 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 this 

private offering, OFS’s ownership was reduced to 

63.4 percent of Ally’s outstanding common stock. 

See the Valuation Methodology and Subsidy Cost 

and Reestimate sections of Note 6 for further 

discussion of the effects of this agreement. 

The OFS received $534 million in dividends from the 

Ally investment each year in fiscal years 2013 and 

2012. 

The 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. 

At September 30, 2012, OFS’s investment in Ally 

was valued at $6.2 billion based upon a model that 

calculated an average of three valuation 

benchmarks, since there was no direct market 

activity available. 

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. 

In fiscal year 2012, OFS received $9.6 billion in 

distributions from the AIG SPVs, paying off the 

remaining investment balance of $9.1 billion, 

recording proceeds in excess of cost of $127 million, 

and collecting $395 million of investment income 

(including $204 million capitalized and recognized 

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

million shares of common stock for $25.2 billion. 

These proceeds were less than OFS’s cost by $9.9 

billion. 

As of September 30, 2013, OFS retained no 

ownership interest in AIG, common or preferred, nor 

any interests in SPVs. At September 30, 2012, the 

OFS owned 154 million shares of AIG common stock, 

approximately 10.5 percent of AIG’s common stock 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

NOTES TO THE FINANCIAL STATEMENTS		 	 	 	 	 	 	 	 	 	63

equity5. Market value of the common stock shares 

was $5.1 billion. 

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 its 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. 

Accordingly, the measurement of the assets 

attempts to represent the proceeds expected to be 

received if the assets were sold to a market 

participant in an orderly transaction. The 

methodology employed for determining market risk 

for equity investments generally involves a 

calibration to market prices of similar securities that 

results in measuring equity investments at fair 

value. The adjustment for market risk for loans is 

intended to capture the risk of unexpected losses, 

                                                            

5 The Department of the Treasury retained no ownership 

interest in AIG at September 30, 2013. It owned 80 

million shares of AIG common stock, approximately 5.4 

percent of AIG’s common stock equity, at September 30, 

2012.

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. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

64 		 	 	 	 	 	 	 	 NOTES TO THE FINANCIAL STATEMENTS

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

 CDCI and TALF 18 - 451 469 

 Public-Private Investment Program - - 10 10 

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

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

(Dollars in Millions)

Quoted 

Prices for 

Identical 

Assets 

(Level 1)

Significant 

Observable 

Inputs 

(Level 2)

Significant 

Unobservable 

Inputs 

(Level 3) Total

Program

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

 CDCI and TALF 9 - 1,095 1,104 

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

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

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

 Asset Guarantee Program - 967 - 967 

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

As of September 30, 2013

As of September 30, 2012

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 Investments6

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 

institution based on the strength of its balance 

sheet. The model assumes a probabilistic evolution 

                                                            

6 This consists of equity investments made under CPP and 

CDCI.

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

of the institution’s assets against its liabilities). 

Each institution’s assets are subject to uncertain 

returns and institutions are assumed to manage 

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

revert over time to a target level. Historical 

volatility is used to scale the likely evolution of each 

institution’s asset-to-liability ratio. 

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

likely to default, either because they enter 

bankruptcy or are closed by regulators. The 

probability of default is estimated based on the 

performance of a large sample of U.S. banks over the 

period 1990-2012. At the other end of the spectrum, 

institutions call their preferred shares when the 

present value of expected future dividends exceeds 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

NOTES TO THE FINANCIAL STATEMENTS		 	 	 	 	 	 	 	 	 	65

the call price; this occurs when equity is high and 

interest rates are low. Inputs to the model include 

institution-specific accounting data obtained from 

regulatory filings, an institution’s stock price 

volatility and historical bank failure information, as 

well as market prices of comparable securities 

trading in the market. The market risk adjustment 

is obtained through a calibration process to the 

market value of certain trading securities of 

financial institutions within TARP programs or 

other comparable financial institutions. The OFS 

estimates the values and projects the cash flows of 

warrants using an option-pricing approach based on 

the current stock price and its volatility. 

Investments in common stock that are exchange 

traded are valued at the quoted market price as of 

year end. 

Public-Private Investment Program 

At September 30, 2013, since the PPIFs no longer 

held security portfolios, the valuation represents 

expected proceeds to OFS upon final liquidation of 

the remaining PPIFs. For the valuations at 

September 30, 2012, OFS estimated cash flows by 

simulating the performance of the collateral 

supporting the residential mortgage-backed 

securities (RMBS) and commercial mortgage-backed 

securities (CMBS) held by the PPIF (i.e. 

performance of the residential and commercial 

mortgages). Inputs used to simulate the cash flows, 

which considered market risks, included 

unemployment forecasts, home price 

appreciation/depreciation forecasts and the current 

term structure of interest rates and historical pool 

performance as well as estimates of the net income 

and value of commercial real estate supporting the 

CMBS. The simulated cash flows were then run 

through a financial model that defined distributions 

of the RMBS/CMBS to determine the estimated cash 

flows to the PPIF. Once determined, those cash 

flows were run through the defined payment 

hierarchy of the PPIFs to determine the expected 

cash flows to the OFS through both the equity 

investments and the loans. 

Term Asset-Backed Securities Loan Facility 

For TALF, the OFS model derives the cash flows to 

the Federal Reserve Bank of New York (FRBNY) 

TALF LLC SPV, and ultimately the OFS, by 

simulating the performance of underlying collateral. 

Loss probabilities on the underlying collateral are 

calculated based on analysis of historical loan loss 

and charge-off experience by credit sector and 

subsector. Historical mean loss rates and volatilities 

are significantly stressed to reflect recent and 

projected performance. Simulated losses are run 

through cash flow models to project impairment to 

the TALF-eligible securities. Simulation outcomes 

consisting of a range of loss scenarios are 

probability-weighted 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 and 2012. 

Traded but not settled shares 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 

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. 

To value its holdings in Ally common equity and 

Series F-2 mandatorily convertible preferred 

securities, on an “if-converted” basis at September 

30, 2012, the OFS used an average of valuation 

multiples such as price-to-earnings, price-to-tangible 

book value, and asset manager valuations to 

estimate the value of the shares. The multiples 

were based on those of comparable publicly-traded 

entities. The adjustment for market risk was 

incorporated in the data points used to determine 

the measurement for Ally, since all points relied on 

market data.

American International Group, Inc. 

Investment Program 

The OFS investment in AIG common stock was 

valued by multiplying the publicly traded share 

price by the number of shares held as of September 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

66 		 	 	 	 	 	 	 	 NOTES TO THE FINANCIAL STATEMENTS

30, 2012. OFS had no investment in AIG common 

stock remaining as of September 30, 2013. 

Asset Guarantee Program 

As of September 30, 2012, the instruments within 

the AGP, consisting of Citigroup Trust Preferred 

Securities receivable from the FDIC with an $800 

million liquidation preference value plus accrued 

dividends and interest, were valued in a manner 

broadly analogous to the previously described 

methodology used for financial institution equity 

investments. As of September 30, 2013, no 

instruments remained. 

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 2013, modifications occurred in 

the AGP and TALF programs that resulted in 

subsidy income of $94 million and $55 million, 

respectively. During fiscal year 2012, a modification 

occurred in the CPP, increasing subsidy cost by $973 

million. 

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 2013 and 2012, financial statement 

reestimates for all programs were performed using 

actual financial transaction data through September 

30. For fiscal years 2013 and 2012, a mix of market 

and security specific data publicly available as of 

August 31 and September 30 each year was used for 

all programs. 

Net downward reestimates for the fiscal years ended 

September 30, 2013 and 2012, totaled $11.8 billion 

and $11.9 billion, respectively. Descriptions of the 

reestimates, by OFS Program, are as follows: 

CPP 

The $1.1 billion downward reestimate for CPP for 

the 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. 

The $2.9 billion downward reestimate for CPP for 

the year ended September 30, 2012 was the result of 

improved market values of the outstanding 

investments and the effect of receiving $8.2 billion in 

repayments, which reduced the remaining 

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

CDCI 

The CDCI program continued to experience 

improved investment performance with several 

institutions repaying in full, resulting in a $32 

million downward reestimate for the year ended 

September 30, 2013. 

The CDCI program reflected improved investment 

performance, resulting in a $30 million downward 

reestimate for the year ended September 30, 2012. 

PPIP 

The $380 million net downward reestimate for the 

PPIP for the year ended September 30, 2013, was 

primarily due to accelerated repayments. 

The $240 million upward reestimate for the PPIP for 

the year ended September 30, 2012, was due 

primarily to accelerated repayments and changes in 

projected performance of the PPIP portfolio. 

TALF 

The investments in the TALF continued to 

experience improved market conditions and 

accelerated repayments, resulting in a $33 million 

downward reestimate for the year ended September 

30, 2013. The $55 million downward modification 

reflects principal and interest repayments occurring 

in February 2013, with contingent interest paid over 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

NOTES TO THE FINANCIAL STATEMENTS		 	 	 	 	 	 	 	 	 	67

time beginning in February 2013. Prior to the 

modification, principal, interest and contingent 

interest would have occurred in March 2015. 

The investments in the TALF experienced improved 

market conditions and accelerated repayments, 

resulting in a $96 million downward reestimate for 

the year ended September 30, 2012. 

SBA 7(a) 

The SBA 7(a) Securities Purchase Program was 

closed in fiscal year 2012, with a $1 million 

downward closing reestimate. 

AIFP 

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 

observable market data from the August 2013 

agreement for the repurchase of the Series F-2 and 

for Ally’s private offering. 

The $230 million upward reestimate for the year 

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

$1.6 billion in the value of the Ally investment, 

partially offset by an increase in the common stock 

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

September 30, 2011 to $22.75 per share at 

September 30, 2012. 

AIG Investment Program 

The $32 million net upward reestimate for the 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. 

The $9.2 billion downward reestimate for the year 

ended September 30, 2012 was due primarily to 

sales of 806 million shares of common stock at prices 

higher than the September 30, 2011 price of $21.95 

per share and the effect of valuing the remaining 

155 million shares at the September 30, 2012 price 

of $32.79 per share. 

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 years ended September 

30, 2013 and 2012. OFS authority expired October 

3, 2010 and no commitments were made thereafter, 

so there were no budget execution subsidy rates for 

fiscal years 2013 and 2012. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

68 		 	 	 	 	 	 	 	 NOTES TO THE FINANCIAL STATEMENTS

Troubled Asset Relief Program Loans and Equity Investments

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

As of September 30, 2013

Direct Loans and Equity Investment Programs:

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

Subsidy Cost Allowance (5,627) (1,350) 10 (4,281) - (6) 

Direct Loans and Equity Investments Outstanding, Net 17,869 $ 1,793 $ 10 $ 15,597 $ - $ 469 $ 

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

Reconciliation of Subsidy Cost Allowance:

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

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

 Dividend and Interest Income 1,092 262 271 534 - 25 

 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) 71 

 Subsidy Reestimates - Upward (Downward) (11,739) (1,140) (380) (10,186) 32 (65) 

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

Reconciliation of Subsidy Cost (Income):

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

 Subsidy Reestimates - Upward (Downward) (11,739) (1,140) (380) (10,186) 32 (65) 

Total Direct Loan and Equity Investment Programs

 Subsidy Cost (Income) (11,794) $ (1,140) $ (380) $ (10,186) $ 32 $ (120) $ 

(Dollars in Millions) TOTAL CPP PPIP AIFP AIG

CDCI-TALFSBA

As of September 30, 2012

Direct Loans and Equity Investment Programs:

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

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

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

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

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

Reconciliation of Subsidy Cost Allowance:

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

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

 Dividend and Interest Income 2,733 572 1,426 534 191 10 

 Net Proceeds from Sales and Repurchases of Assets

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

 Net Interest Expense on Borrowings from 

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

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

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

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

Reconciliation of Subsidy Cost (Income):

 Subsidy Cost (Income) for Disbursements (31) $ - $ (31) $ - $ - $ - $ 

 Subsidy Cost (Income) for Modifications 973 973 - - - - 

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

Total Direct Loan and Equity Investment Programs

 Subsidy Cost (Income) (10,778) $ (1,924) $ 209 $ 230 $ (9,166) $ (127) $ 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

NOTES TO THE FINANCIAL STATEMENTS		 	 	 	 	 	 	 	 	 	69

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. 

As a premium for the guarantee, Citigroup issued 

$7.0 billion of cumulative perpetual preferred stock 

(subsequently converted to Trust Preferred 

Securities with similar terms) with an 8 percent 

stated dividend rate and a warrant for the purchase 

of common stock; $4.0 billion and the warrant were 

issued to the OFS, and $3.0 billion was issued to the 

FDIC. 

In December 2009, the USG Parties and Citigroup 

agreed to terminate the guarantee agreement. 

Citigroup cancelled $1.8 billion of the preferred 

stock previously issued to OFS. In addition, the 

FDIC agreed to transfer to the OFS $800 million of 

their Trust Preferred Securities (TruPS) plus 

dividends by December 31, 2012. The amount OFS 

was to receive would be reduced by any losses FDIC 

incurred on its Citigroup guaranteed debt. The 

additional preferred shares from the FDIC were 

included in the subsidy calculation for AGP, based 

on the net present value of expected future cash 

inflows. 

Only the $800 million of TruPS-related receivable 

from the FDIC valued at $967 million was on the 

OFS Balance Sheet at September 30, 2012. 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 2013 and the program was closed. 

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. For fiscal year 2012, the AGP program 

recorded a $207 million downward reestimate, due 

to revised expectations about the timing of receipt of 

dividends, interest on the dividends and the TruPS 

from the FDIC. 

The following table details the changes in the 

receivable account and the AGP subsidy cost during 

fiscal years 2013 and 2012: 

Reconciliation of Asset Guarantee Program Receivable:

(Dollars in Millions) 2013 2012

Balance, Beginning of Period $ 739 967 $ 

 Subsidy Income for Modifications 94 - 

 Dividend Revenue - (200) 

 Proceeds from Sales in Excess of Cost (894) - 

 Net Interest Expense on Borrowings from Fiscal Service and Financing Account Balance 9 21 

Balance, End of Period, Before Reestimates (24) 760 

 Subsidy Reestimates - Downward 24 207 

Balance, End of Period $ 967 - $ 

Reconciliation of Subsidy Cost (Income):

 Subsidy Income for Modifications (94) $ - 

 Subsidy Reestimates - (Downward) (24) (207) 

Total Subsidy Cost (Income) $ (207) (118) $ 

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

70 		 	 	 	 	 	 	 	 NOTES TO THE FINANCIAL STATEMENTS

FHA-Refinance Program 

The OFS entered into a loss-sharing agreement with 

the FHA to support a program in which FHA 

guarantees refinancing of borrowers whose homes 

were worth less than the remaining amounts owed 

under their mortgage loans. 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 2013, $182 million of loans were 

disbursed by the FHA. As of 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. During fiscal year 2012, $234 million of loans 

were disbursed by the FHA. As of September 30, 

2012, 1,774 loans that FHA had guaranteed, with a 

total value of $307 million, had been refinanced 

under the program. 

OFS’s maximum exposure related to FHA’s 

guarantee totaled $59 million and $41 million at 

September 30, 2013 and 2012, respectively. OFS’s 

guarantee resulted in a liability of $9 million at 

September 30, 2013 and a liability of $7 million at 

September 30, 2012. 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 

disbursed loans. As of September 30, 2013, $47,840 

of claims had been paid by OFS under the program. 

As of September 30, 2012, no claims had been paid. 

At September 30, 2013, OFS’s obligation for subsidy 

for undisbursed loans was $1.0 billion. This was 

reduced in fiscal year 2013 from the $8.1 billion 

outstanding at September 30, 2012, due to 

adjustments to expected participation in the 

program. 

Budget subsidy rates for the program, entirely for 

defaults, were set at 2.48 percent and 4.0 percent for 

loans guaranteed in fiscal years 2013 and 2012, 

respectively. 

The program recorded $3 million downward 

reestimates each year, for fiscal years 2013 and 

2012, due to reductions in market risks and lower 

than projected defaults. 

The following table details the changes in the FHARefinance Program Liability and the Subsidy Cost 

for the program during fiscal years 2013 and 2012: 

Reconciliation of FHA-Refinance Program Liability

(Dollars in Millions) 2013 2012

Balance, Beginning of Period 7 $ 1 $ 

 Subsidy Cost for Guarantees (Defaults) 5 9 

Balance, End of Period, Before Reestimates 12 10 

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

Balance, End of Period $ 7 9 $ 

Reconciliation of Subsidy Cost (Income)

 Subsidy Cost for Guarantees (Defaults) 5 $ 9 $ 

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

Total Subsidy Cost (Income) $ 6 2 $ 

Fiscal Year
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

NOTES TO THE FINANCIAL STATEMENTS		 	 	 	 	 	 	 	 	 	71

NOTE	7.	DUE	TO	THE	GENERAL	FUND	

As of September 30, 2013, the OFS accrued $8.1 

billion of downward reestimates payable to the 

General Fund. As of September 30, 2012, the OFS 

accrued $9.7 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, 2013 and 2012, were as follows: 

(Dollars in Millions) 2013 2012

Beginning Balance, Principal Payable to the Fiscal Service $ 129,497 52,828 $ 

 New Borrowings 208 2,658 

 Repayments (41,087) (79,327) 

Ending Balance, Principal Payable to the Fiscal Service $ 52,828 11,949 $ 

As of September 30,

Borrowings from the Fiscal Service by TARP program, outstanding as of September 30, 2013 and 2012, were 

as follows: 

(Dollars in Millions) 2013 2012

Capital Purchase Program 1,210 $ 5,150 $ 

CDCI and TALF 551 1,020 

Public-Private Investment Program 305 16,317 

Automotive Industry Financing Program 9,883 17,845 

American International Group, Inc. Investment Program - 11,736 

Asset Guarantee Program - 760 

Total Borrowings Outstanding $ 52,828 11,949 $ 

As of September 30,

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. As of September 30, 2012, borrowings 

carried remaining terms ranging from 2 to 29 years, 

with interest rates from 1.0 percent to 4.4 percent. 

 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

72 		 	 	 	 	 	 	 	 NOTES TO THE FINANCIAL STATEMENTS

NOTE	9.		COMMITMENTS	AND	CONTINGENCIES	

The OFS is party to various legal actions and claims 

brought by or against it. In the opinion of 

management and the Chief Counsel, the ultimate 

resolution of these legal actions and claims will not 

have a material effect on the OFS financial 

statements. The OFS has not incurred any loss 

contingencies that would be considered probable or 

reasonably possible for these cases; therefore, no 

liability was established. Refer to Note 5 for 

additional commitments relating to the 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 of ensuring the overall stability 

and liquidity of the financial system, preventing 

avoidable foreclosures and preserving 

homeownership. The OFS has determined that all 

initiatives and programs under the TARP fall within 

this strategic goal. 

The OFS SNC reports the annual accumulated full 

cost of the TARP’s output, including both direct and 

indirect costs of the program services and output 

identifiable to TARP, in accordance with SFFAS No. 

4, Managerial Cost Accounting Concepts and 

Standards. 

The OFS SNC for fiscal year 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. The OFS SNC for fiscal year 2012 

includes $2.3 billion of intragovernmental costs 

relating to interest expense on borrowings from the 

Fiscal Service and $605 million in 

intragovernmental revenues relating to interest 

income on financing account balances. 

Subsidy allowance amortization on the SNC is the 

difference between interest income on financing 

fund account balances, dividends and interest 

income on direct loans, equity investments and other 

credit programs from TARP participants, and 

interest expense on borrowings from the Fiscal 

Service. Credit reform accounting requires that only 

subsidy cost, not the net of other costs (interest 

expense and dividend and interest income), be 

reflected in the SNC. The subsidy allowance 

account is used to present the loan or equity 

investment at the estimated net present value of 

future cash flows. The OFS SNC includes $671 

million and $1.1 billion of subsidy allowance 

amortization for fiscal years 2013 and 2012, 

respectively. 

NOTE	11.		STATEMENT	OF	BUDGETARY	RESOURCES	

The Statement of Budgetary Resources (SBR) 

presents information about total budgetary 

resources available to the OFS and the status of 

those resources. For the year ended September 30, 

2013, the OFS’s total resources in budgetary 

accounts were $22.4 billion and resources in nonbudgetary financing accounts, including borrowing 

authority and spending authority from collections of 

loan principal, liquidation of equity investments, 

interest, dividends and fees were $15.6 billion. For 

the year ended September 30, 2012, the OFS’s total 

resources in budgetary accounts were $41.9 billion 

and resources in non-budgetary financing accounts 

were $25.9 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 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

NOTES TO THE FINANCIAL STATEMENTS		 	 	 	 	 	 	 	 	 	73

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 whenever funds needed to disburse direct 

loans and equity investments, and to enter into 

asset guarantee and loss-sharing arrangements, 

exceed subsidy costs and collections in the nonbudgetary financing accounts. For the year ended 

September 30, 2013, the OFS had no borrowing 

authority available, of the $208 million authorized, 

since the authority was used. For the year ended 

September 30, 2012, the OFS had borrowing 

authority available of $2.6 billion, of the $2.7 billion 

authorized. 

The OFS uses dividends and interest received as 

well as principal repayments on direct loans and 

liquidation of equity investments to repay debt in 

the non-budgetary direct loan, equity investment 

and other credit program financing accounts. These 

receipts are not available for any other use per 

credit reform accounting guidance. 

Apportionment Categories of 

Obligations Incurred: Direct versus 

Reimbursable Obligations 

All of the OFS apportionments are Direct and are 

Category B. Category B apportionments typically 

distribute budgetary resources on a basis other than 

calendar quarters, such as by activities, projects, 

objects or a combination of these categories. The 

OFS obligations incurred are direct obligations 

(obligations not financed from intragovernmental 

reimbursable agreements).

Undelivered Orders 

Undelivered orders as of September 30, 2013 were 

$29.1 billion in budgetary accounts and $1.0 billion 

in non-budgetary financing accounts. Undelivered 

orders as of September 30, 2012 were $40.2 billion in 

budgetary accounts and $5.9 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 2015, with the “Actual” 

column completed for fiscal year 2013, 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 2014. It will be available from the 

Government Printing Office. 

The 2014 President’s Budget, with the “Actual” 

column completed for the year ended September 30, 

2012, was published in April 2013, 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 | OFFICE OF FINANCIAL STABILITY

74 		 	 	 	 	 	 	 	 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, 2013 and 2012 follows: 

(Dollars in Millions) 2013 2012

Resources Used to Finance Activities:

Budgetary Resources Obligated

 Obligations Incurred $ 35,803 14,879 $ 

 Actual Offsetting Collections, Net of Change in Uncollected Customer Payments, and Recoveries (48,668) (87,383) 

 Offsetting Receipts (6,063) (13,218) 

Net Obligations (57,643) (47,007) 

Other Resources 1 1 

Total Resources Used to Finance Activities (57,642) (47,006) 

Resources Used to Finance Items Not Part of Net Cost of (Income from) Operations:

 Net Obligations in Direct Loan, Equity Investment and Other Credit Programs Financing Funds 27,322 78,988 

 Change in Resources Obligated for Goods, Services and Benefits Ordered but not yet Provided 11,164 3,157 

 Resources that Fund Prior Period Expenses and Reestimates 8,957 (23,294) 

Total Resources Used to Finance Items Not Part of Net Cost of (Income from) Operations 58,851 47,443 

Total Resources Used to Finance the Net Cost of (Income from) Operations 1,209 437 

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 (8,139) (8,958) 

 Other 1 1 

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

Resources in the Current Period (8,957) (8,138) 

Net Cost of (Income from) Operations $ (7,748) (7,701) $ 

 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

REQUIRED SUPPLEMENTARY INFORMATION		 	 75

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 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 993 29,406 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)
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

76		 	 REQUIRED SUPPLEMENTARY INFORMATION

Dollars in Millions

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

BUDGETARY RESOURCES

 Unobligated Balance Brought Forward, October 1 14,166 $ 21,143 $ 13,967 $ 21,143 $ 199 $ - $ 

 Recoveries of Prior-Year Unpaid Obligations 146 6,114 104 6,114 42 - 

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

 Actual Repayment of Debt, Prior-Year Balances - (19,900) - (19,900) 

 Unobligated Balance from Prior-Year Budget Authority, Net 14,312 1,525 14,071 1,525 241 - 

 Appropriations 27,593 - 27,270 - 323 - 

 Borrowing Authority - 2,659 - 2,659 - - 

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

TOTAL BUDGETARY RESOURCES (Note 11) 41,905 $ 25,879 $ 41,341 $ 25,879 $ 564 $ - $ 

STATUS OF BUDGETARY RESOURCES

 Obligations Incurred 27,555 $ 8,248 $ 27,270 $ 8,248 $ 285 $ - $ 

 Unobligated Balance:

 Apportioned 41 3,946 - 3,946 41 - 

 Unapportioned 14,309 13,685 14,071 13,685 238 - 

 Total Unobligated Balance 14,350 17,631 14,071 17,631 279 - 

TOTAL STATUS OF BUDGETARY RESOURCES 41,905 $ 25,879 $ 41,341 $ 25,879 $ 564 $ - $ 

CHANGE IN OBLIGATED BALANCES

Unpaid Obligations:

 Unpaid Obligations Brought Forward, October 1 43,814 $ 13,158 $ 43,618 $ 13,158 $ 196 $ - $ 

 Obligations Incurred 27,555 8,248 27,270 8,248 285 - 

 Gross Outlays (30,675) (9,366) (30,400) (9,366) (275) - 

 Recoveries of Prior-Year Unpaid Obligations (146) (6,114) (104) (6,114) (42) - 

Unpaid Obligations, End of Year 5,926 40,548 40,384 5,926 164 - 

Uncollected Payments from Federal Sources:

 Uncollected Payments Brought Forward, October 1 - (496) - (496) - - 

 Change in Uncollected Payments - 147 - 147 - - 

Uncollected Payments from Federal Sources, End of Year (349) - - (349) - - 

Obligated Balance, Net, End of Year 40,548 $ 5,577 $ 40,384 $ 5,577 $ 164 $ - $ 

OBLIGATED BALANCES

 (Net of Unpaid Obligations and Uncollected Payments Above)

Obligated Balance, Net, Brought Forward, October 1 43,814 $ 12,662 $ 43,618 $ 12,662 $ 196 $ - $ 

Obligated Balance, Net, End of Year 40,548 $ 5,577 $ 40,384 $ 5,577 $ 164 $ - $ 

BUDGET AUTHORITY AND OUTLAYS, NET

 Budget Authority, Gross 27,593 $ 24,354 $ 27,270 $ 24,354 $ 323 $ - $ 

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

 Change in Uncollected Customer Payments from Federal Sources - 147 - 147 - - 

BUDGET AUTHORITY, NET 27,593 $ (56,768) $ 27,270 $ (56,768) $ 323 $ - $ 

 Gross Outlays 30,675 $ 9,366 $ 30,400 $ 9,366 $ 275 $ - $ 

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

 Net Outlays 30,675 (71,903) 30,400 (71,903) 275 - 

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

AGENCY OUTLAYS, NET 24,612 $ (71,903) $ 24,337 $ (71,903) $ 275 $ - $ 

2012

Combined TARP Programs TARP Administrative

Office of Financial Stability - Troubled Asset Relief Program

REQUIRED	SUPPLEMENTARY	INFORMATION

COMBINED	STATEMENT	OF	BUDGETARY	RESOURCES

For the Year Ended September 30, 2012

(Unaudited)
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

OTHER INFORMATION –SCHDEULE OF SPENDING 	 	 77

OTHER	INFORMATION	–	SCHEDULE	OF	SPENDING	

Dollars in Millions

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

WHAT IS AVAILABLE TO SPEND?

 Total Resources per Statement of Budgetary Resources (SBR) 22,385 $ 15,562 $ 41,905 $ 25,879 $ 

 Less Amount Apportioned (not yet agreed to be spent) (11) (668) (41) (3,946) 

 Less Amount Unapportioned (not yet available to be spent) (21,595) (794) (14,309) (13,685) 

AMOUNT AVAILABLE TO SPEND-OBLIGATIONS INCURRED PER SBR $ 14,100 779 $ 27,555 $ 8,248 $ 

HOW WAS THE AMOUNT SPENT?

 Personnel Compensation 17 $ - $ 22 $ - $ 

 Personnel Benefits 5 - 6 - 

 Travel and Transportation 1 - 1 - 

 Supplies and Materials 1 - 2 - 

 Other Services 272 26 254 20 

 Interest 856 - - 2,252 

 Subsidies, including Reestimates for Previously

 Disbursed Loans and Investments Outstanding7 13,218 27,270 5,976 483

AMOUNT AVAILABLE TO SPEND-OBLIGATIONS INCURRED PER SBR $ 14,100 779 $ 27,555 $ 8,248 $ 

TO WHOM WERE THE OBLIGATIONS MADE?

 Federal Agencies and Entities 505 $ 14,074 $ 27,306 $ 8,228 $ 

 Non-Federal Companies - Freddie Mac/Fannie Mae for Housing 215 - 164 - 

 Non-Federal Companies - All Other 41 26 60 20 

 Non-Federal Individuals 18 - 25 - 

AMOUNT AVAILABLE TO SPEND-OBLIGATIONS INCURRED PER SBR $ 14,100 779 $ 27,555 $ 8,248 $ 

2013 2012

Office of Financial Stability - T roubled Asset Relief Program

OTHER	INFORMATION

SCHEDULE	OF	SPENDING

For the Years Ended September 30, 2013 and 2012

(Unaudited)

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. 7

                                                            

7 Subsidies obligated in nonbudgetary financing accounts 

consist of negative subsidies and downward reestimates, 

which are reductions of subsidy cost, transferred from the 

financing accounts to the Treasury General Fund. These 

transfers occur in the same fiscal year as the obligations.
THE DEPAR

78

TMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

APPENDIX A: TARP GLOSSARY
APPENDIX A

Part		3

A: TARP GLOSSA

3:	Append

RY

ices	

AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

79
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

80	 	 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. 

Non-Agency Residential Mortgage-Backed 

Securities: RMBS that are not guaranteed or 

issued by Freddie Mac, Fannie Mae, any other 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2013

APPENDIX A: TARP GLOSSARY		 	 81

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 help stabilize the 

financial system and prevent a systemic 

collapse. 

Trust Preferred Security (TruPS): A security 

that has both equity and debt characteristics, 

created by establishing a trust and issuing 

debt to it. TruPS are treated as capital, not 

debt, for regulatory purposes. 

Warrant: A financial instrument that 

represents the right, but not the obligation, to 

purchase a certain number of shares of 

common stock of a company at a fixed price.

 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

82	 		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 

CP Commercial Paper 

COP Congressional Oversight Panel 

CPP Capital Purchase Program 

CDCI Community Development Capital Initiative 

DIP Debtor-In-Possession 

EESA Emergency Economic Stabilization Act of 

2008 

FCRA Federal Credit Reform Act of 1990 

FHA Federal Housing Administration 

FRBNY Federal Reserve Bank of New York 

GAO Government Accountability Office 

GSE Government-Sponsored Enterprise 

HAFA Home Affordable Foreclosure Alternatives 

HHF Hardest Hit Fund 

HAMP Home Affordable Modification Program 

HPDP Home Price Decline Protection 

MBS Mortgage-Backed Security 

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 

PRA Principal Reduction Alternative 

QFI Qualifying Financial Institution 

RMBS Residential Mortgage-Backed 

Securities 

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

Documents Referenced in the AFR:

Monthly Reports to Congress

http://www.treasury.gov/initiatives/financial-stability/reports/Pages/Monthly-Report-to-Congress.aspx

The Financial Crisis Response in Charts – April 2012

http://www.treasury.gov/resource-center/data-chart-center/Documents/20120413_FinancialCrisisResponse.pdf.

Anniversary Reports 

http://www.treasury.gov/initiatives/financial-stability/reports/Pages/TARP-Annual-Retrospectives.aspx

Agency Financial Reports, including 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 | OFFICE OF FINANCIAL STABILITY