AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

TABLE OF CONTENTS iii

Table of Contents

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

MESSAGE FROM THE CHIEF FINANCIAL OFFICER FOR THE OFFICE OF FINANCIAL STABILITY.v

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

Part 1: Management’s Discussion and Analysis

Program Background and OFS Organization Structure....................................................................... 3

OFS Operational Goals ................................................................................................................................................... 8

Analysis of Fiscal Years 2017 and 2016 Financial Summary and Cumulative Net Income............15

Analysis of Systems, Controls, and Legal Compliance....................................................................................21

Other Management Information, Initiatives, and Issues...............................................................................25

Limitations of the Financial Statements...............................................................................................................26

Part 2: Financial Section

GOVERNMENT ACCOUNTABILITY OFFICE AUDITOR’S REPORT .............................................................29

Appendix I: Management’s Report on Internal Control over Financial Reporting.............................35

Appendix II: OFS Response to Auditor’s Report...............................................................................................36

FINANCIAL STATEMENTS .........................................................................................................................................37

NOTES TO THE FINANCIAL STATEMENTS.........................................................................................................42

REQUIRED SUPPLEMENTARY INFORMATION.................................................................................................66

Part 3: Other Information (Unaudited)

Section A – Payment Integrity..................................................................................................................................71

Section B – Fraud Reduction and Data Analytics Act......................................................................................73

Section C – Reduce the Footprint............................................................................................................................74

TARP Glossary.................................................................................................................................................................75

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

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

iv FOREWORD

FOREWORD

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

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

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

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

prepare a series of separate reports to provide the fiscal year 2017 financial and performance 

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

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

• Message from the Chief Financial Officer: A statement from the Chief Financial Officer

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

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

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

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

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

systems, controls, and legal compliance, including the Management’s Statement of 

Assurance.

• Financial Section: This section provides the Report of the Independent Auditors, the 

financial statements, the notes to the financial statements, and other statutory reporting.

• Other Information: This section includes the information regarding the Improper Payments 

Information Act (IPIA).

In addition to this AFR, the performance section of the OFS fiscal year 2018 Congressional Budget 

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

legislation:

• Reports Consolidation Act of 2000;

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

2010;

• Government Management Reform Act of 1994 (GMRA);

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

• Federal Financial Management Improvement Act of 1996 (FFMIA); and

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

Elimination and Recovery Act of 2010 (IPERA).

These reports will be available on the OFS website at: http://www.treasury.gov/initiatives/financialstability/reports/Pages/default.aspx
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

MESSAGE FROM THE CHIEF FINANCIAL OFFICER v

MESSAGE FROM THE CHIEF FINANCIAL OFFICER FOR THE OFFICE 

OF FINANCIAL STABILITY

November 3, 2017

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

Year 2017. This report describes our financial and performance results for the ninth year of the 

Troubled Asset Relief Program (TARP). Within this report you will find the comparative fiscal years 

2017 and 2016 financial statements for TARP, the Government Accountability Office’s (GAO) 

auditor’s report with the audit opinion on these financial statements, an opinion from GAO on OFS’s 

internal control over financial reporting for TARP, and the results of the GAO’s tests of OFS’s 

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

to OFS. 

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

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

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

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

extraordinary crisis. 

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

2017, OFS had collected 103 percent of the $412.1 billion in program funds that were disbursed 

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

stake in American International Group, Inc. Of the original ten investment programs, eight are 

effectively closed. Investment programs with remaining outstanding balances include the Capital 

Purchase Program ($48 million) and the Community Development Capital Initiative ($75 million). 

OFS continues to wind-down those positions as quickly as practicable. 

In addition to winding down the investment programs under TARP, TARP’s largest housing 

program, Making Home Affordable (MHA), closed to new applications as of December 30, 2016, as 

required by the Consolidated Appropriations Act, 2016 (the Act). More than 2.9 million homeowner 

assistance actions have taken place through the MHA, including 1.7 million permanent 

modifications through the Home Affordable Modification Program (HAMP). In addition, MHA has 

indirectly assisted millions more by setting new standards and changing industry practices that led 

to more affordable and sustainable private modifications. MHA has also demonstrated that a 

mortgage modification can be a sustainable option for homeowners seeking to avoid foreclosure. As 

we continue to execute the MHA wind-down, we are actively engaged with stakeholders on what the 

future of loss mitigation should include to ensure a smooth and successful transition for the 

mortgage servicing industry to life after MHA. 

To date, our efforts through the Hardest Hit Fund (HHF) have assisted approximately 319,000 

American homeowners in preventing avoidable foreclosures, and helped stabilize neighborhoods in 

18 states and the District of Columbia. In the last year alone, HHF programs assisted

approximately 50,000 households. Notwithstanding these accomplishments and recent 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

vi MESSAGE FROM THE CHIEF FINANCIAL OFFICER

improvements in the economy, the recovery of the housing market remains uneven. While state 

unemployment rates and home prices have generally improved, many homeowners and 

neighborhoods continue to face obstacles. Many of the states participating in the HHF continue to 

exceed the national average for underemployment and negative equity and many experience higher 

than average rates of serious mortgage delinquency. In addition, blighted and vacant properties 

depress property values in many communities that would otherwise benefit from the rise in home 

prices, while other communities are unable to attract new homebuyers to stimulate market activity. 

Recognizing the current and persistent need among HHF states, the Act included a provision that 

allowed OFS to commit an additional $2.0 billion in TARP funds to the program. On February 19, 

2016, OFS announced that the $2.0 billion would be allocated to existing HHF program participants. 

By June 2016, OFS had completed the allocation process and made available the additional funds to 

Housing Finance Agencies (HFAs).

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

consecutive year, OFS has earned an unmodified opinion from the GAO on its financial statements 

for TARP, and its internal control over financial reporting for TARP.

Sincerely, 

Lorenzo Rasetti

Chief Financial Officer for the Office of Financial Stability
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

EXECUTIVE SUMMARY vii

EXECUTIVE SUMMARY

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

challenges on a scale not seen since the Great 

Depression. The banks and financial markets

on which American families and businesses rely 

to meet their everyday financing needs were on 

the brink of failure. By October 2008, major 

financial institutions of all sizes were 

threatened and many of them tried to shore up 

their balance sheets by shedding risky assets 

and hoarding cash. People were rapidly losing 

trust and confidence in the stability of 

America’s financial system and the capacity of 

the government to contain the damage.

Without immediate and forceful action by 

Congress and the federal government, the U.S. 

economy faced the risk of falling into a second 

Great Depression.

It was out of these extraordinary circumstances 

that the Troubled Asset Relief Program (TARP)

and the Office of Financial Stability (OFS) were 

created. They were a central part of the

emergency measures taken by the federal 

government pursuant to the Emergency 

Economic Stabilization Act of 2008 (EESA). 

Collectively, TARP and the federal 

government’s other emergency programs helped 

to prevent the collapse of our financial system. 

As a result of the careful design, 

implementation, and coordination of these 

programs, the federal government was able to 

limit the broader financial and economic 

damage caused by the crisis. Although we are 

still recovering, these measures were critical to 

restarting economic growth, and in restoring 

access to capital and credit. 

Since late 2010, 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 amount disbursed for TARP 

programs was $438.5 billion, OFS has collected 

$425.3 billion (or $442.9 billion if including the 

$17.5 billion in proceeds from the additional 

Treasury American International Group, Inc. 

shares1) through repayments, sales, dividends, 

interest, and other income. As of September 30, 

2017, only $123 million in bank investments 

remain outstanding. 

The Management’s Discussion & Analysis 

(MD&A) describes the establishment of OFS, its 

background, mission, and organizational 

structure. OFS administers programs that fall 

into two major categories: Investments and 

Housing. In total, OFS had responsibility for 13 

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 promoting domestic 

economic growth and stability while continuing 

reforms of the financial system. These goals 

include:

1. Completing the wind-down of remaining 

TARP investment programs;

2. Continuing to help struggling 

homeowners avoid foreclosure;

3. Minimizing the cost of the TARP 

programs to the taxpayer; and

4. Operating with the highest standards of 

transparency, accountability, and 

integrity.

The first operational goal is to complete the 

wind-down of the remaining TARP investment 

programs, the Capital Purchase Program (CPP) 

and Community Development Capital Initiative 

(CDCI). OFS continues to exit the CPP by 

either: (i) allowing banks that are able to 

repurchase in full in the near future to do so; or

(ii) restructuring OFS’s investments in limited 

cases. In addition, in August 2016, OFS 

announced an early repurchase option for CDCI 

institutions. This plan offered a limited window 

during which CDCI participants could submit 

proposals to repurchase their outstanding 

securities at fair value ahead of scheduled 

 1 Totals may not equal due to rounding.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

viii EXECUTIVE SUMMARY

dividend rate step-ups that will take effect in 

2018. 

OFS’s second operational goal is to continue 

helping struggling homeowners avoid 

foreclosure. The Making Home Affordable 

Program (MHA) closed to new applications on 

December 30, 2016, as required by the 

Consolidated Appropriations Act, 2016 (the Act)

(except with respect to certain loan modification 

applications made before such date). In 2016, 

OFS published guidance related to the MHA 

program termination and borrower application 

sunset to provide additional clarification to 

borrowers who request assistance or to whom 

an offer of assistance has been extended on or 

before December 30, 2016. 

The largest program within MHA is the Home 

Affordable Modification Program (HAMP). 

Under this program approximately 1.7 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. 

Another OFS housing program, the Hardest Hit 

Fund (HHF), provides funding to 18 states and 

the District of Columbia through each state’s 

Housing Finance Agency (HFA) to provide 

assistance to struggling homeowners through 

locally-tailored programs. HFAs have 

implemented many types of programs to help 

homeowners, including mortgage payment 

assistance, reinstatement, short sale/transition 

assistance, principal reduction, and 

modification assistance. As the housing 

recovery has evolved, HFAs have undertaken 

additional initiatives such as blight elimination 

and down payment assistance programs, which 

help prevent foreclosures by stabilizing 

neighborhoods and property values. On 

February 19, 2016, OFS announced that an 

additional $2.0 billion would be allocated

among the participating HFAs, and the 

program end date would be extended to 

December 31, 20202. On June 30, 2016, OFS 

completed its allocation of those additional 

funds. Although nine HFAs had previously 

 2 In accordance with the Consolidated Appropriations Act, 

2016.

closed their HHF application portals due to 

approaching full commitment of program funds, 

many of these HFAs re-opened or expanded 

select, closed programs as additional funds 

became available.

The third operational goal of OFS is to 

minimize the cost of the TARP programs to the 

taxpayer. OFS pursues this goal by carefully 

managing the timely exit of these investments 

to reduce taxpayers’ exposure, returning TARP 

funds to reduce the federal debt, and continuing 

to replace government assistance with private 

capital in the financial system. OFS also takes 

steps to confirm that TARP recipients comply 

with any TARP-related statutory or contractual 

obligations such as executive compensation 

requirements and restrictions on dividend 

payments.

OFS’s final operational goal is to continue 

operating with the highest possible standards of 

transparency, accountability, and integrity. 

OFS posts a variety of reports online that 

provide taxpayers with regular and 

comprehensive information about how TARP 

funds are being spent, who has received them 

and on what terms, and how much has been 

collected to date. In addition to discussing 

program performance, the MD&A addresses 

OFS’s financial performance in the Analysis of 

Fiscal Years 2017 and 2016 Financial Summary 

and Cumulative Net Income section. OFS 

provides an overview of its financial data and 

explains its fiscal year 2017 net cost from

operations and related loans, equity 

investments, and other credit programs. 

Finally, the Analysis of 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 Managers’

Financial Integrity Act (FMFIA) and the 

determination of its compliance with the 

Federal Financial Management Improvement 

Act (FFMIA).
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

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

2 MANAGEMENT’S DISCUSSION AND ANALYSIS
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

MANAGEMENT’S DISCUSSION AND ANALYSIS 3

Program Background and OFS Organization Structure

Program Background

Legal Authority

In response to the worst financial crisis since the 

Great Depression, the Troubled Asset Relief 

Program (TARP) was created on October 3, 2008 

pursuant to the Emergency Economic 

Stabilization Act (EESA). To carry out the 

authorities given to the Secretary of the 

Treasury to implement TARP, the U.S. 

Department of the Treasury (Treasury)

established the Office of Financial Stability 

(OFS) within the Office of Domestic Finance. 

EESA authorized the Secretary of the Treasury 

to establish TARP to “purchase, and to make 

and fund commitments to purchase, troubled 

assets from any financial institution, on terms 

and conditions as are determined by the 

Secretary” to restore the liquidity and stability 

of the financial system. The terms “troubled 

assets” and “financial institution” are defined 

within EESA, which can be found at: 

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

In addition, Section 109 of EESA provides the 

authority to assist homeowners.

The Dodd-Frank Wall Street Reform and 

Consumer Protection Act (the Dodd-Frank Act), 

signed into law in July 2010, reduced total 

TARP purchase authority from $700.0 billion to 

a cumulative $475.0 billion. OFS’s authority to 

make new program commitments under TARP 

originally expired on October 3, 2010. The 

Consolidated Appropriations Act, 2016 (the Act), 

gave the Secretary of the Treasury the ability to 

commit an additional $2.0 billion in TARP funds 

to current Hardest Hit Fund (HHF) participants. 

The additional $2.0 billion was obligated by 

Treasury as of June 2016. OFS currently does 

not have the authority to commit new program 

funds.

Bank Support Programs (CPP, TIP, AGP, 

CDCI, SCAP)

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. With the additional capital that OFS 

offered, CPP participants were better equipped 

to undertake new lending and continue to 

provide other services to consumers and 

businesses. OFS received preferred stock or 

subordinated debt securities in exchange for the 

CPP investments. Most financial institutions 

participating in the CPP issued preferred stock 

with an initial dividend rate of five percent for 

the first five years, stepping up to a nine percent 

rate thereafter. In addition, OFS received 

warrants to purchase common shares or other 

securities from the banks to enable OFS to 

receive additional returns on its investments as 

banks recovered. OFS continues to wind-down 

the remaining CPP investments through 

repayments by those institutions that are able to 

repay, restructurings and sales of common stock, 

where OFS’s investment shares were converted 

to common stock holdings.

Targeted Investment Program

OFS established the Targeted Investment 

Program (TIP) in December 2008. OFS invested 

a total of $40.0 billion in two institutions – Bank 

of America (BofA) and Citigroup – under the 

TIP. Similar to the CPP, OFS invested in 

preferred stock and received warrants to 

purchase common stock in each institution. The 

TIP investments provided for annual dividends 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

4 MANAGEMENT’S DISCUSSION AND ANALYSIS

of eight percent. The program also imposed 

greater reporting requirements and other 

restrictions on BofA and Citigroup. OFS 

completed the wind-down of the TIP in 

December 2009 when both BofA and Citigroup 

repaid their TIP investments in full. OFS 

received net proceeds of $4.4 billion in excess of 

disbursements.

Asset Guarantee Program

Under the Asset Guarantee Program (AGP), 

TARP commitments were used to support two 

institutions – BofA and Citigroup. BofA, 

however, ultimately decided not to participate in 

this program, and paid OFS a termination fee of 

$276 million. In January 2009, OFS, the 

Federal Reserve, and the Federal Deposit 

Insurance Corporation (FDIC) agreed to share 

potential losses on a $301.0 billion pool of 

Citigroup’s covered assets. As a premium for the 

guarantee to Citigroup, OFS received $4.0 

billion of Citigroup preferred stock, which was 

reduced by $1.8 billion upon early termination of 

the agreement. OFS completed the wind-down of 

the AGP in February 2013, and received more 

than $4.1 billion in proceeds from the AGP 

without disbursing any claim payments.

Community Development Capital Initiative

On February 3, 2010, OFS created the 

Community Development Capital Initiative 

(CDCI) to help viable certified Community 

Development Financial Institutions (CDFIs) and 

the communities they serve cope with effects of 

the financial crisis. Since many CDFIs don’t 

have the same access to capital markets as 

larger banks, the program 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. To encourage repayment 

while recognizing the unique circumstances 

facing CDFIs, the dividend rate increases to nine 

percent after eight years. In August 2016, OFS 

announced an early repurchase option for CDCI 

institutions to allow remaining participants to 

repurchase their outstanding securities at a fair 

value ahead of the dividend rate step-ups 

currently set to take place in 2018. OFS 

completed the last of the early repurchases in 

January 2017. In total, there were 27 full and 

partial repurchases at fair value under the early 

repurchase option.

Supervisory Capital Assessment Program

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 thereby 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))

OFS has completed the wind-down of all three 

credit market programs that were launched 

under TARP. A total of $19.1 billion was 

disbursed through these programs and a total of 

$23.6 billion has been collected.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

MANAGEMENT’S DISCUSSION AND ANALYSIS 5

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). 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. OFS 

completed the wind-down of the PPIP during 

fiscal year 2015, with no debt or equity 

investments outstanding after the final equity 

repayment was made in June 2013. OFS 

received $22.5 billion of repayment, sales and 

investment income that exceeded the original 

investment by $3.9 billion.

Term Asset-Backed Securities Loan Facility

The Term Asset-Backed Securities Loan Facility 

(TALF) was a joint OFS-Federal Reserve 

program that was designed to restart the 

markets for asset-backed securities (ABS) and 

CMBS, which had ground to a virtual standstill 

during the early months of the financial crisis. 

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 

Federal Reserve Bank of New York (FRBNY). 

In 2013, the commitment was reduced to $100 

million – the loan amount that was ultimately 

disbursed by OFS to fund the TALF, LLC. As of 

September 30, 2015, all TALF loans provided by 

FRBNY had been repaid in full and the program 

closed. Since inception, accumulated income 

earned from investments in TALF, LLC totaled 

$685 million.

Small Business Administration 7(a) 

Securities Purchase Program

OFS launched the Small Business 

Administration (SBA) 7(a) Securities Purchase 

Program to help facilitate the recovery of the 

secondary market for small business loans, and 

thus help free up credit for small businesses. 

Under this program, OFS purchased securities 

comprised of the guaranteed portion of SBA 7(a) 

loans, which finance a wide range of small 

business needs. OFS invested approximately 

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

March and September 2010. Investments under 

the SBA 7(a) program were fully liquidated by 

January 2012, resulting in proceeds in excess of 

cost of $9 million.

For additional information on the credit market 

programs, please visit the OFS website at: 

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

Automotive Industry Financing Program

The Automotive Industry Financing Program 

(AIFP) was launched in December 2008 to help 

prevent the disorderly liquidations of General 

Motors (GM) and Chrysler, which would have 

resulted in a significant disruption of the U.S. 

auto industry. Recognizing that both GM and 

Chrysler were on the verge of collapse, OFS 

disbursed $79.7 billion in loans and equity 

investments to GM, Chrysler, and General 

Motors Acceptance Corporation (now known as 

Ally Financial). As of September 30, 2017, OFS 

has collected $70.5 billion through sales, 

repayments, dividends, interest, recoveries, and 

other income, compared to the original 

disbursement. Recoveries from the bankruptcy 

liquidation of Old Chrysler and Old GM remain 

possible.

For additional information on the AIFP, please 

visit the OFS website at: 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

6 MANAGEMENT’S DISCUSSION AND ANALYSIS

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

American International Group, Inc. 

Investment Program

In 2008, with American International Group, 

Inc. (AIG) facing potentially fatal liquidity 

problems and with the crisis threatening to 

intensify and spread more broadly throughout 

the economy, Treasury and the Federal Reserve 

provided assistance to AIG. In December 2012, 

Treasury exited all remaining holdings in AIG

through the sale of common stock and AIG’s 

repurchase of warrants. During the financial 

crisis, the Treasury’s and the FRBNY’s peak 

support for AIG totaled $182.3 billion. That 

included $69.8 billion in TARP funds that OFS 

committed and $112.5 billion committed by the 

FRBNY, including $22.1 billion in commitments 

which were later canceled. As a result of the 

combined efforts of AIG, Treasury, and the 

FRBNY, $22.7 billion in excess of the total of 

funds disbursed were recovered through sales 

and other income. OFS’s cumulative net 

proceeds from repayments, sales, dividends, 

interest, and other income related to AIG assets 

totaled $55.3 billion. While TARP recovered less 

than its $67.8 billion total investment, this was 

offset by the proceeds from the additional 

Treasury shares of AIG, resulting in overall 

proceeds in excess of disbursements of $5.0 

billion for Treasury as a whole.

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

Making Home Affordable

In early 2009, OFS launched MHA to help 

struggling homeowners avoid foreclosure and 

stabilize the housing market. OFS has 

committed $27.8 billion to the MHA program.

MHA is aimed at helping homeowners 

experiencing financial hardships to remain in 

their homes until their financial position 

improves or they relocate to a more sustainable 

living situation. At the same time, MHA 

protects the interests of taxpayers by disbursing 

funds only when transactions are completed and 

only as long as contracts remain in place. 

The cornerstone of MHA is the Home Affordable 

Modification Program (HAMP), which provides 

eligible homeowners the opportunity to reduce 

their monthly mortgage payments to more 

affordable and sustainable levels to avoid 

foreclosure. In addition to HAMP, OFS 

introduced programs under MHA to help 

homeowners who are unemployed, “underwater” 

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

home than it is currently worth), or are 

struggling with a second lien. MHA also includes 

options for homeowners who would like to 

transition to a more affordable living situation 

through a short sale or deed-in-lieu of 

foreclosure. 

In accordance with provisions of the Act, MHA 

terminated on December 31, 2016, except with 

respect to certain loan modification applications 

made before such date. Therefore, while 

applications submitted before the deadline 

continue to be evaluated and servicers may 

continue to offer HAMP trials (in accordance 

with program guidelines), the program is now 

closed to new applications. MHA has set new 

standards for mortgage assistance and consumer 

protection, which have contributed to millions of 

homeowners receiving assistance to avoid 

foreclosure through other government programs 

and proprietary mortgage modifications.

In addition to HAMP, MHA includes programs 

to help homeowners address specific types of 

mortgages, in conjunction with the Federal 

Housing Administration (FHA) and the United 

States Department of Agriculture (USDA).
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

MANAGEMENT’S DISCUSSION AND ANALYSIS 7

Housing Finance Agency Innovation Fund 

for the Hardest Hit Housing Markets 

(Hardest Hit Fund)

The HHF was established in February 2010 to 

provide targeted aid to homeowners in states hit 

hardest by the economic and housing market 

downturn. In an effort to restore stability to 

housing markets, the HHF 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. In 

total, $9.6 billion in HHF funds has been 

allocated among 18 states and the District of 

Columbia. Seven years after program inception, 

homeowners continue to face ongoing economic 

challenges including negative equity and 

underemployment in hardest hit states in the 

wake of the financial crisis. 

HHF programs vary state to state, but may 

include such programs as mortgage payment 

assistance for unemployed or underemployed 

homeowners, reinstatement to bring 

homeowners current on their mortgage or 

property taxes, principal reduction to help 

homeowners modify or refinance into more 

affordable mortgages, funding to eliminate 

homeowners’ second lien loans, funding for 

blight elimination activities, funding for down 

payment assistance to homebuyers, and help for 

homeowners who are transitioning out of their 

homes 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

Support for FHA-Refinance Program

In March 2010, enhancements were made to an 

existing FHA program that permitted lenders to 

provide additional refinancing options to 

homeowners who owe more than their homes are 

worth because of large declines in home prices in 

their local markets. This program, known as the 

FHA-Refinance program, is intended to provide 

more opportunities for qualifying mortgage loans 

to be restructured and refinanced into FHAinsured loans. On December 31, 2016, the 

application period for the FHA-Refinance 

Program ended. TARP funds have been made 

available up to $27 million to cover the 

maximum total amount of OFS coverage for the 

loans in the program.

OFS Organization Structure

OFS is currently headed by OFS’s Chief 

Financial Officer (CFO). In the absence of an 

Assistant Secretary for Financial Stability

(ASFS), OFS’s CFO has been formally delegated 

the authorized duties of the ASFS. Reporting to 

the CFO are three major organizations: the 

Office of Finance and Operations, the 

Homeownership Preservation Office, and the 

Chief Investment Office. The Office of General

Counsel and the Office of Financial Agents also 

report to the CFO as well as to other 

Departmental Offices.

OFS is not envisioned as a permanent 

organization, so to the maximum extent possible 

when economically efficient and appropriate, 

OFS utilizes private sector expertise to support 

the execution and liquidation of TARP 

programs. These firms assist in the areas of 

custodial services, accounting and internal 

controls, administrative support, legal advisory, 

financial advisory, program compliance, and 

information technology.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

8 MANAGEMENT’S DISCUSSION AND ANALYSIS

OFS Operational Goals

OFS’s Operational Goals were developed by 

management to achieve our strategic objective to 

wind-down emergency financial crisis response 

programs under our strategic goal of promoting 

domestic economic growth and stability while 

continuing reforms of the financial system. The 

following discussion of OFS operational goals 

focuses on significant events that occurred 

during fiscal year 2017. 

Operational Goal One: Complete the 

Wind-down of the Investment 

Programs

Bank Support Programs

OFS disbursed a total of $245.5 billion under the 

various TARP bank programs. As of September 

30, 2017, OFS has collected more than $275.8 

billion through repayments, dividends, interest, 

warrant sales, and other income, representing 

$30.4 billion in excess of disbursements. OFS is 

focused on recovering TARP funds in a manner 

that continues to promote the nation’s financial 

stability while maximizing returns on behalf of 

the taxpayers. 

Capital Purchase Program

In fiscal year 2017, OFS continued to make 

progress winding down the CPP. Each dollar 

collected from CPP participants now represents 

additional collections in excess of disbursements 

on behalf of taxpayers. From inception of the 

program through September 30, 2017, OFS has 

received $199.7 billion in CPP repayments/sales, 

along with $12.1 billion in dividends and 

interest, and $14.9 billion of proceeds in excess 

of cost, which totals $226.8 billion3. As of 

September 30, 2017, $48 million in CPP gross 

 3 Totals may not equal due to rounding.

investments remained outstanding in 6 

institutions.

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, with the 

approval of their regulators. 

However, since the majority of the institutions 

currently in the CPP portfolio remain a going 

concern, OFS continues to work with CPP

institutions to restructure certain investments

that will allow them to exit TARP. 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. 

During fiscal years 2017 and 2016, one and two 

investments were repaid in full for a total of $2 

million and $4 million, respectively. In addition, 

five and five investments were restructured 

resulting in proceeds of $80 million and $20 

million in fiscal years 2017 and 2016, 

respectively.

At the beginning of the fiscal year, OFS held two 

of its remaining CPP positions in common stock, 

First Bancorp-Puerto Rico (FB-PR) and 

Broadway Financial Corporation (Broadway). 

During the fiscal year, OFS sold its remaining 

common stock in FB-PR for net proceeds of $58 

million. In addition, OFS sold 7,450,998 shares 

of its Broadway common stock for total net 

proceeds of $13 million.

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. OFS has 

received net warrant proceeds of $8.1 billion to 

date.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

MANAGEMENT’S DISCUSSION AND ANALYSIS 9

Additional information on the CPP, including 

details on the program’s purpose, overview, and 

status can be found at the following link:

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

Community Development Capital Initiative

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 ($356 million from 

principal and $8 million from warrants) 

represented exchanges by 28 CPP institutions 

converting into the CDCI. During fiscal years 

2017 and 2016, OFS collected a total of $327 

million and $35 million, respectively, in 

repayments, early repayments, dividends, and 

interest from institutions in the CDCI program. 

As of September 30, 2017, $75 million in CDCI 

investments remained outstanding in 22 

institutions.

In keeping with OFS’s goal of exiting its crisisera programs in a timely and responsible 

manner, in August 2016, OFS announced that it 

was offering an early repurchase option to 

eligible CDCI participants. Under the early 

repurchase option, CDCI institutions were 

permitted to submit proposals requesting early 

repurchase of between half and all of their 

outstanding CDCI securities held by OFS. 

These proposals were evaluated by a committee 

using fair market valuation estimates. CDCI 

institutions had until November 18, 2016 to 

submit their final proposals. By the end of 

January 2017, OFS completed 27 full and partial 

repurchases at fair value under the early 

repurchase option for a total of $268 million in 

repayments. The early repurchase option 

allowed OFS to dispose of investments at fair 

value in a manner that helped eliminate longer 

term credit and market risk exposure to 

taxpayers from the portfolio.

Additional information on CDCI, including 

details on the program’s purpose, overview, and 

status can be found at the following link:

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

Automotive Industry Financing Program 

OFS fully wound down the AIFP during fiscal 

year 2015, selling its remaining stake in Ally 

Financial. OFS disbursed $79.7 billion in loans 

and equity investments to the auto industry 

through the AIFP. As of September 30, 2017, 

OFS has collected $70.5 billion through sales, 

repayments, dividends, interest, recoveries, and 

other income. This includes $5 million collected 

during fiscal year 2017, related to the Motors 

Liquidation Company Debtor-in-Possession 

(DIP) Lenders Trust.

To further maximize the recovery of TARP funds 

for taxpayers, OFS, along with Export 

Development Canada (EDC), which jointly 

financed administration of the General Motors 

bankruptcy, entered into a settlement with the 

Unsecured Creditors Committee of General 

Motors Corporation to split any proceeds of the 

Avoidance Action Trust (AAT) litigation, with 

OFS and EDC receiving 30 percent and the 

unsecured creditors receiving 70 percent. As a 

condition of the settlement, OFS and EDC 

provided an advance of $15 million ($13 million 

provided by OFS) in September 2016 to the AAT 

to fund the ongoing litigation against certain 

lenders to Old GM. This settlement yields the 

most favorable attainable economic outcome to 

ensure OFS is repaid some portion of any assets 

recovered through the pending lawsuit.

Additional information on the AIFP, including 

details on the program’s purpose, overview, and 

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

10 MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Operational Goal Two: Continue 

Helping Families in Need to Avoid 

Foreclosure

Making Home Affordable

Consistent with OFS’s goal of continuing to help 

struggling homeowners find solutions to avoid 

foreclosure whenever possible, OFS has 

developed and is implementing a process to 

seamlessly transition the program from an 

active to steady state, while assisting as many 

homeowners as possible that applied by the 

program’s statutory sunset date of December 31, 

2016. As of September 30, 2017, 65 servicers are 

participating in OFS’s MHA program for nonGovernment Sponsored Enterprise (GSE) loans. 

As of September 30, 2017, OFS has

commitments to fund up to $27.8 billion in MHA 

payments and has disbursed $17.9 billion since 

inception.

OFS publishes assessments of servicer 

performance containing data on compliance with 

program guidelines, as well as metrics on 

program results. OFS believes that these 

assessments have set a new standard for 

transparency about mortgage servicer efforts to 

assist homeowners at risk of foreclosure, and 

have helped encourage servicers to improve 

processes and performance of their foreclosure 

prevention activities.

MHA performance highlights for fiscal year 2017

can be found at: 

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

The largest program within MHA is HAMP. 

HAMP offered eligible homeowners at risk of 

foreclosure the opportunity to modify their 

monthly mortgage payments to a more 

affordable and sustainable level. 

As of September 30, 2017, approximately 1.7

million homeowners have received permanent 

modifications through HAMP.4 Homeowners 

participating in HAMP have collectively 

experienced nearly a 35 percent median 

reduction in their mortgage payments—

representing more than $466 per month. MHA 

has also encouraged the mortgage industry to 

offer their own similar programs, which have 

helped millions more at no cost to taxpayers.

Additional information on MHA, including 

details on the program’s purpose, overview, and 

status can be found at the following link:

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

Hardest Hit Fund

In addition to MHA, OFS operates the HHF, 

which allows participating state HFAs in the 

nation’s hardest hit housing and unemployment 

markets to design innovative, locally-targeted 

foreclosure prevention programs.

In fiscal year 2017, state HFAs continued to 

adapt their programs to best meet borrower 

needs in evolving economic and housing 

markets. Notwithstanding the HFAs’ efforts 

and recent improvements in the economy, the 

recovery of the housing market remains uneven. 

Recognizing the current and persistent need 

among HHF states, the Act included a provision 

that allowed OFS to commit an additional $2.0 

billion in TARP funds to current HHF program 

participants. 

 

 4 Includes modifications on both non-GSE loans and GSE 

loans. 1,194,261 of these modifications are OFS funded 

consisting of 1,072,312 non-GSE modifications and 121,949 

GSE modifications.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

MANAGEMENT’S DISCUSSION AND ANALYSIS 11

A total of 16 HFAs offer principal reduction to 

facilitate a loan modification, refinance, recast, 

or eliminate subordinate liens. Seven HFAs

offer property tax reinstatement for elderly 

homeowners with reverse mortgages. 

Additionally, eight HFAs allocate a portion of 

their HHF funds to blight elimination in an 

effort to stabilize neighborhoods and prevent 

foreclosures. Finally, nine HFAs now offer 

Down Payment Assistance Programs, making 

assistance available to moderate-income 

homebuyers in targeted counties that continue 

to demonstrate housing market distress. 

As of September 30, 2017, the 19 HFAs have 

collectively drawn approximately $8.4 billion (88 

percent) of the $9.6 billion allocated under the 

program. For fiscal years 2017 and 2016, this 

program has disbursed $1.7 billion and $1.0 

billion, respectively. Each state draws down 

funds as they are needed, but must have no

more than five percent of their allocation on 

hand before they can draw down additional 

funds. States have until December 31, 2021 to 

utilize all HHF funding. 

Each HFA submits a quarterly report on the 

progress of its programs. These reports measure 

the states’ performance against metrics set by 

OFS for various aspects of their programs. 

Direct links to each state’s most recent 

performance report can be found at:

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

OFS also publishes a Quarterly Performance 

Summary, a companion reference to the HFAs’ 

Quarterly Performance Reports. The Summary 

contains performance data and trends, key 

economic and loan performance indicators, and 

brief program descriptions for each HFA. The 

Quarterly Performance Summary can be found 

at: 

https://www.treasury.gov/initiatives/financialstability/reports/Pages/HHF.aspx

Additional information on the HHF, including 

details on the program’s purpose, overview, and 

status can be found at the following link:

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

FHA-Refinance Program 

On March 26, 2010, FHA and OFS announced 

enhancements to the FHA-Refinance Program,

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 (incrementally 

reduced to $27 million, OFS’s maximum liability 

for loans covered by the program as of December 

31, 2016), in order to fund a share of the losses 

associated with this program. The program 

closed to new borrowers on December 31, 2016; 

however, OFS will continue to cover potential 

loss claim payments through December 31, 2022. 

As of September 30, 2017, FHA has guaranteed 

7,234 refinance loans with a total face value of 

approximately $1.0 billion, of which 4,200 loans 

are subject to OFS coverage with a face value of 

$620 million. 

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 2017 and 2016 to dispose of OFS’s 

outstanding investments in a manner that 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

12 MANAGEMENT’S DISCUSSION AND ANALYSIS

balances speed of exit with maximizing returns 

for taxpayers. OFS continues to take steps to 

ensure that TARP recipients comply with any 

TARP-related statutory or contractual 

obligations such as executive compensation 

requirements and restrictions on dividend 

payments.

OFS takes a disciplined portfolio approach –

reviewing each investment and closely 

monitoring risk and performance. In addition to 

repayments by participants, OFS has disposed of 

investments to third parties through public and 

private offerings and auctions with approval 

from regulators. 

Risk Assessment

OFS has developed procedures to identify and 

mitigate investment risk. These procedures are 

designed to identify TARP recipients that face a 

heightened financial risk and determine 

appropriate responses to preserve OFS’s 

investment on behalf of taxpayers, while 

maintaining financial stability. Specifically, 

OFS’s external asset managers review publicly 

available information to identify recipients for 

which pre-tax, pre-provision earnings and 

capital may be insufficient to offset future losses 

and maintain required capital. For certain 

institutions, OFS and its external asset 

managers engage in heightened monitoring and 

due diligence that reflects the severity and 

timing of the challenges. 

Compliance 

OFS monitors certain TARP-related statutory 

and contractual obligations of remaining TARP 

recipients. Statutory obligations include 

certification and disclosures related to executive 

compensation restrictions. Contractual 

obligations vary by investment type. For most of 

OFS’s preferred stock investments, TARP 

recipients need to comply with restrictions on 

payment of dividends and on repurchases of 

junior securities. Recipients of exceptional 

assistance (none of which remain in the 

program) were required to comply with 

additional restrictions on executive 

compensation, lobbying, and corporate expenses. 

OFS also performs periodic reviews of the 19 

HFAs participating in the HHF program to 

evaluate each HFA’s ongoing compliance with 

their contractual agreement with OFS, as well 

as their compliance with HHF program terms 

and underwriting requirements.

In addition, all mortgage servicers participating 

in MHA are subject to program guidelines that

require the servicer to offer MHA assistance to 

all eligible borrowers and to have effective

systems, processes, and controls to administer 

the programs. Servicers are subject to periodic, 

on-site compliance reviews by OFS’s compliance 

agent, Making Home Affordable-Compliance

(MHA-C), a separate, independent division of 

Freddie Mac, to monitor whether servicers’ 

obligations under MHA requirements are being 

met.

In fiscal year 2011, OFS began publishing 

quarterly assessments for the largest servicers 

that currently comprise approximately 83

percent of the HAMP mortgage servicing. 

These assessments have been used to ensure 

focus on emerging areas of interest, draw 

servicer attention to higher risk areas, and 

prompt the industry to improve its practices. As 

the program has evolved and servicers have 

significantly improved their performance, OFS 

has updated the assessment to ensure it 

includes metrics that address current areas of 

interest and concern.

Currently, OFS is utilizing its third iteration of 

quarterly assessments, which rely on enhanced 

loan file review testing. The updated 

assessment provides additional insight into the 

impact of servicer performance on the borrower 

experience and fosters further improvement in 

servicer performance by tightening performance 

benchmarks. Beginning in early 2018, 

compliance testing will transition to a delegated 

servicer testing model.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

MANAGEMENT’S DISCUSSION AND ANALYSIS 13

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 towards promoting financial 

stability, OFS established comprehensive 

accountability and transparency measures. OFS 

is committed to operating its investment and 

housing programs in full view of the public. This 

includes providing regular and comprehensive 

information about how TARP funds are being 

spent, who has received them and on what 

terms, and how much has been collected to date. 

All of this information, along with numerous 

reports of different frequencies, is posted in the 

Financial Stability section of the Treasury.gov 

website, which can be found at: 

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

These reports include: 

• A Monthly TARP Update (formerly the 

Daily TARP Update) that features 

detailed financial data related to each 

TARP investment program, including 

the status of disbursements and all 

collections by category;

• A monthly report to Congress that 

details how TARP funds have been used, 

the status of recovery of such funds by 

program, and information on the 

estimated cost of TARP;

• A monthly report on dividend and 

interest payments;

• A quarterly report on Making Home 

Affordable; 

• A report of each transaction (such as an 

investment or repayment) within two 

business days of each transaction;

• A quarterly report on the Hardest Hit 

Fund; and

• A quarterly report to Congress on 

administrative expense activities.

In addition, OFS regularly publishes data files 

related to MHA and transaction reports that 

show activity related to MHA and HHF. The 

release of the data file fulfills a requirement

within the Dodd-Frank Act to make available 

loan-level data about the program. OFS updates 

the file monthly. Researchers interested in 

using the MHA Data File can access the file and 

user guide at: 

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

Audited Financial Statements 

OFS prepares separate financial statements for 

TARP on an annual basis. This is the ninth OFS 

Agency Financial Report (AFR), which includes 

the audited financial statements for the fiscal 

years ended September 30, 2017 and September 

30, 2016. Additional reports for prior periods 

are available at: 

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

In its nine years of operation, TARP’s financial 

statements have received nine unmodified audit

opinions from its auditor, the Government 

Accountability Office (GAO). 

TARP Tracker

Since 2013, OFS has offered an interactive tool 

called the TARP Tracker, which allows users to 

track the flow of TARP funds over the lifetime of 

each individual TARP investment area. The 

TARP Tracker allows users to view each 

investment area separately to get a clearer sense 

of what has occurred in a particular program, 

and includes a scroll of events, major 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

14 MANAGEMENT’S DISCUSSION AND ANALYSIS

transactions, and legislative actions that have 

impacted the program.

Readers are invited to refer to these documents

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

Oversight by Three Separate Agencies

OFS activities are currently reviewed by three 

oversight entities:

• The Financial Stability Oversight Board, 

established by EESA Section 104;

• Specific responsibilities for the GAO as 

set out in EESA Section 116; and

• The Special Inspector General for TARP, 

established by EESA Section 121.

OFS has productive working relationships with 

all of these bodies, and cooperates with each 

oversight agency’s effort to produce periodic 

audits and reports that focus on the many 

aspects of TARP. Individually and collectively, 

the oversight bodies’ audits and reports have 

made and continue to make important 

contributions to the development, strengthening, 

and transparency of TARP programs.

Congressional Hearings and Testimony

OFS officials have testified in numerous 

Congressional hearings since TARP was created. 

Copies of their written testimony are available 

at: 

http://www.treasury.gov/initiatives/financialstability/news-room/Pages/default.aspx
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

MANAGEMENT’S DISCUSSION AND ANALYSIS 15

Analysis of Fiscal Years 2017 and 2016 Financial Summary and 

Cumulative Net Income

OFS’s fiscal year 2017 net cost of operations of 

$4.1 billion includes the reported net income 

related to TARP investment and FHA-Refinance 

programs, as well as expenses for the Treasury 

housing programs under TARP and 

administrative expenses. For the fiscal year 

ended September 30, 2017, OFS reported net 

subsidy income for four programs – CPP, CDCI, 

AIFP and FHA-Refinance. These programs 

collectively reported net subsidy income of $14 

million. Fiscal year 2017 costs for the Treasury 

housing programs under TARP are $4.0 billion 

and administrative costs are $97 million. For 

the fiscal year ended September 30, 2016, the 

net cost of operations was $4.1 billion. These net 

cost amounts reported in the financial 

statements reflect only transactions through 

September 30, 2017 and September 30, 2016, 

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, 2017. 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, 2017, 

and cash inflows on the investments in the form 

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

16 MANAGEMENT’S DISCUSSION AND ANALYSIS

Table 1: TARP Summary1

From TARP Inception through September 30, 2017

(Dollars in millions)

Purchase 

Price or 

Guarantee 

Amounts

Total $ 

Disbursed

Investment 

Repayments

Write-offs 

and Losses6

Outstanding 

Balance7

Received 

from 

Investments

Bank Support Programs 

Capital Purchase Program2 $ 204,895 $ 204,895 $ (199,663)5 $ (5,184) $ 48 $ 27,090

Targeted Investment 

Program 40,000 40,000 (40,000) - - 4,432 

Asset Guarantee Program 5,000 - - - - 4,126 

Community Development 

Capital Initiative 570 570 (468) (27) 75 64

Credit Market Programs 

Public Private Investment 

Program 18,625 18,625 (18,625) - - 3,852 

Term Asset-Backed 

Securities Loan Facility 100 100 (100) - - 685 

SBA 7(a) Securities 

Purchase Program 367 367 (363) (4) - 13 

Other Programs 

Automotive Industry 

Financing Program 79,692 79,692 (63,037) (16,656) - 7,500

American International 

Group Investment 

Program3

 67,835 67,835 (54,350) (13,485) - 959 

Subtotal for Investment 

Programs 417,085 412,085 (376,606) (35,356) 123 48,719

Treasury Housing 

Programs under TARP 37,4254 26,410 N/A N/A N/A - 

Total for TARP Program $ 454,510 $ 438,494 $ (376,606) $ (35,356) $ 123 $ 48,719 

Note: Figures may not foot due to rounding. 1 This table shows TARP activity for the period from inception through September 30, 2017, on a cash basis. Received 

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

and repurchases of assets in excess of costs. 2 OFS received $31.9 billion in proceeds from sales of Citigroup common stock, of which $25.0 billion is included at cost 

in Investment Repayments, and $6.9 billion of net proceeds in excess of cost is included in Received from Investments. 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). 

4 Individual obligation amounts are $27.8 billion for the Making Home Affordable Program, $9.6 billion for the Hardest 

Hit Fund, and $45 million committed for the FHA-Refinance Program.

5 Includes $2.2 billion of Small Business Lending Fund (SBLF) refinancing outside of TARP and CDCI exchanges from 

CPP of $363 million.

6 Losses represent proceeds less than cost on sales of assets, which are reflected under “net proceeds from sales and 

repurchases of assets in excess of (less than) cost” in Note 6 of the financial statements.

7 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 do not require (and OFS does not expect) repayments.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

MANAGEMENT’S DISCUSSION AND ANALYSIS 17

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, 2017 OFS received a total of 

$24.5 billion in dividends and interest. 

OFS has conducted several sales of its 

investments in banking institutions as part of its 

exit strategy for winding down TARP. As of 

September 30, 2017, OFS has sold its 

investments in 190 banks for combined principal 

receipts of $3.1 billion through individual 

private auctions. These auctions resulted in net 

proceeds less than cost of to date of $774 million.

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, 2017, OFS has received $9.7

billion in gross proceeds from the disposition of 

warrants associated with CPP, TIP, AGP, and 

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

repurchases at agreed upon values and (ii) $5.6 

billion from auctions. 

Summary of TARP Equity 

Investments

Table 2 provides information on the estimated 

values of TARP investment programs, as of the 

end of fiscal years 2017 and 2016. 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, 2017 and 2016. The 

Estimated Value of Investment column 

represents the present value of net cash inflows 

that OFS estimates it will receive from the 

programs. These estimates include market risk 

assumptions. For equity investments, this 

amount represents fair value. The total 

difference of $30 million (2017) and $140 million 

(2016) between the two columns is considered

the “subsidy cost allowance” under the Federal 

Credit Reform Act methods OFS follows for 

budget and accounting purposes. 

See Note 6 in the financial statements for 

further discussion.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

18 MANAGEMENT’S DISCUSSION AND ANALYSIS

Table 2: Summary of TARP Equity Investments 

(Dollars in millions)

Program 

Outstanding 

Balance as of 

September 

30, 20171 

Estimated Value 

of Investment as 

of September 30, 

2017 

Outstanding 

Balance as of 

September 30, 

20161 

Estimated 

Value of 

Investment as 

of September 

30, 2016 

Bank Support Programs 

Capital Purchase Program $ 48 $ 35 $ 210 $ 111

Community Development 

Capital Initiative 75 58 420 379

Credit Market Programs 

Public-Private Investment 

Program 0 0 0 0

Term Asset-Backed Securities 

Loan Facility 0 0 0 0

SBA 7(a) Securities Purchase 

Program 0 0 0 0

Other Programs 

Automotive Industry Financing 

Program 0 0 0 0

American International Group 

Investment Program 0 0 0 0

Total $ 123 $ 93 $ 630 $ 490 

1 Before subsidy cost allowance.

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 many of the 

original disbursed investments repaid. The 

financial performance of the remaining 

programs will depend on many factors, such 

as future economic and financial conditions 

and the business prospects of specific 

institutions. The cost estimates are sensitive 

to slight changes in model assumptions, such 

as general economic conditions, specific stock 

price volatility of the entities in which OFS 

has an equity interest, estimates of expected 

defaults, and prepayments. Wherever 

possible, OFS uses market prices of tradable 

securities to estimate the fair value of TARP 

investments. Use of market prices is possible 

for TARP investments that trade in public 

markets or are closely related to tradable 

securities. For those TARP investments that 

do not have direct analogs in private markets, 

OFS uses internal 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.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

MANAGEMENT’S DISCUSSION AND ANALYSIS 19

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, 

2017, provide a good illustration of this 

impact. Table 3 provides information on how 

OFS’s estimated lifetime cost of TARP has 

changed over time. The cost estimates for the 

non-housing programs have fluctuated in 

large part due to changes in the market prices 

of common stock for AIG, GM and Ally. 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 match the 

financial statements since the table 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 website at:

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

The cost amounts in Table 3 are based on 

assumptions regarding future events, which 

are inherently uncertain.

Table 3: Estimated Lifetime TARP Costs (Income)1 

(Dollars in billions) 

 Estimated Lifetime Cost (Income) as of September 30 

Program 2009 5 2010 2011 2012 2013 2014 2015 2016 2017 

Bank Support Programs 

Capital Purchase Program ($14.6) ($11.2) ($13.0) ($14.9) ($16.1) ($16.1) ($16.3) ($16.3) ($16.3)

Targeted Investment 

Program (1.9) (3.8) (4.0) (4.0) (4.0) (4.0) (4.0) (4.0) (4.0)

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

Community Development 

Capital Initiative 0.4 0.3 0.2 0.2 0.1 0.1 0.1 0.1 0.1

Credit Market Programs 

Public Private Investment 

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

Term Asset-Backed 

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

SBA 7(a) Securities Purchase 

Program N/A 0.0 0.0 (0.0) (0.0) (0.0) (0.0) (0.0) (0.0)

Other Programs 

Automotive Industry 

Financing Program 34.5 14.7 23.6 24.3 14.7 12.2 12.1 12.2 12.2

American International 

Group Investment Program3 56.8 36.9 24.3 15.3 15.2 15.2 15.2 15.2 15.2

Subtotal 74.1 32.1 24.6 14.1 2.6 0.1 (0.2) (0.2) (0.3)

Treasury Housing Programs 

under TARP4 50.0 45.6 45.6 45.6 37.7 37.4 37.4 34.7 32.6

Total $124.1 $77.7 $70.2 $59.7 $40.3 $37.5 $37.2 $34.5 $32.3 

Note: Figures may not foot due to rounding.

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

2 Prior to the termination of the guarantee agreement, 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). 

4 The estimated lifetime cost for Treasury Housing Programs under TARP consist of the MHA, HHF, and FHA-Refinance programs. The estimated lifetime cost of the FHA-Refinance Program 

(which is accounted for under credit reform) represents the total estimated subsidy cost associated with total obligated amount.

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

20 MANAGEMENT’S DISCUSSION AND ANALYSIS

Key Factors Affecting TARP Future 

Activities and Ultimate Cost

TARP investment programs are nearly wound 

down with only $123 million of the total 

$412.1 billion disbursed still outstanding, 

representing 28 small banks in the CPP and 

CDCI portfolios. The estimated lifetime 

income associated with investment programs 

is currently $254 million and may fluctuate in 

the future. Going forward, the expenditures 

for Treasury housing programs under TARP 

are expected to most significantly affect 

changes to the lifetime cost of TARP. The 

ultimate cost of Treasury housing programs 

will depend on macroeconomic factors, 

including real-estate values, financing 

available in capital markets, and the market 

demand for housing. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

MANAGEMENT’S DISCUSSION AND ANALYSIS 21

Analysis of Systems, Controls, and Legal Compliance

 

MANAGEMENT ASSURANCES 

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

maintaining effective internal control and financial management systems that meet the objectives 

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

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

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

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

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

Office of Management and Budget (OMB) Circular A-123.

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

below, taken as a whole, were achieved as of September 30, 2017. Specifically, this assurance is

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

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

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

OFS’s internal controls are designed to meet the management objectives established by Treasury 

and listed below:

(a) Reliable financial reporting;

(b) Effective and efficient operations;

(c) Compliance with laws and regulations; and

(d) Financial management systems comply with Federal financial management systems 

requirements.

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

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

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

Management and Internal Control, Appendix A, Internal Control over Financial Reporting. Based on 

the results of this evaluation, OFS provides unmodified assurance that internal control over financial 

reporting is appropriately designed and operating effectively as of September 30, 2017, with no related 

material weaknesses noted.

Sincerely,

Lorenzo Rasetti

Chief Financial Officer for the Office of Financial 

Stability
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

22 MANAGEMENT’S DISCUSSION AND ANALYSIS

Federal Managers’ Financial 

Integrity Act (FMFIA)

The management control objectives under 

FMFIA are to reasonably ensure that:

• Obligations and costs are in 

compliance with applicable law;

• Funds, property, and other assets are 

safeguarded against waste, loss, 

unauthorized use, or 

misappropriation; and

• Revenues and expenditures applicable 

to agency operations are properly 

recorded and accounted for to permit 

the preparation of accounts, reliable 

financial and statistical reports, and 

to maintain accountability over the 

assets.

FMFIA requires agencies to evaluate and 

report on the effectiveness of controls over 

operations and financial reporting, compliance 

with applicable laws and regulations (FMFIA 

Section 2), and conformance with financial 

management systems requirements (FMFIA 

Section 4) and Federal Financial Management 

Improvement Act (FFMIA) that protect the 

integrity of federal programs. Deficiencies 

that seriously affect an agency’s ability to 

meet these objectives are deemed “material 

weaknesses.”

OFS continues to have a high performing 

internal control program in compliance with 

FMFIA. FMFIA and OMB Circular A-123, 

Management’s Responsibility for Enterprise 

Risk Management and Internal Control, 

require agencies to evaluate and report on 

enterprise risk management (ERM) and 

internal controls in place to help ensure 

effectiveness and efficiency of operations, 

compliance with applicable laws and 

regulations, and reliability of reporting. 

OFS has completed these rigorous internal 

control 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 ERM and a sound system of 

internal control. OFS’s ERM and 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 risks and control objectives 

across OFS and its third-party service 

providers. Furthermore, managers 

throughout OFS are responsible for 

identifying relevant risks, and ensuring that 

effective internal controls are implemented in 

their areas of responsibility. Senior 

management throughout OFS provides subcertification statements annually concerning 

whether there is reasonable assurance that 

the objectives of ERM and internal control are 

met. Senior management also reports on and 

takes steps to correct control weaknesses and 

tracks those weaknesses through resolution.

OFS management believes that maintaining 

integrity and accountability in all programs 

and operations is critical to its mission and 

demonstrates responsible stewardship over 

assets and resources. It also promotes 

responsible leadership and maximizes desired 

program outcomes. OFS has received 

unmodified opinions from the GAO on its 

financial statements and internal control over 

financial reporting for TARP since fiscal year 

2009, its first year of operation. OFS 

continues to execute its ERM and internal 

controls assessment process to ensure that 

management can identify risks and 

deficiencies and take timely corrective actions. 

The OFS fiscal year 2017 self-assessment of 

its ERM activities and system of internal 

controls did not identify any significant 

deficiencies or material weaknesses.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

MANAGEMENT’S DISCUSSION AND ANALYSIS 23

Federal Financial Management 

Improvement Act and Financial 

Management Systems

Federal Financial Management 

Improvement Act (FFMIA)

FFMIA mandates that agencies “...implement 

and maintain financial management systems 

that comply substantially with federal 

financial management systems requirements, 

applicable federal accounting standards, and 

the United States Government Standard 

General Ledger (USSGL) at the transaction 

level.” FFMIA also requires the development 

of remediation plans by any entity unable to 

report substantial compliance with these 

requirements. 

During fiscal year 2017, OFS used a riskbased approach to assess its financial 

management systems’ compliance with 

FFMIA, as required by OMB and in 

accordance with Treasury-wide guidance. 

OFS conducted its self-assessment to 

determine its risk levels and determined that 

all OFS financial management systems are in 

compliance with FFMIA.

Financial Management Systems 

Framework

OFS’s financial management systems 

framework consists of two fundamental 

components: 1) core financial and mixed 

systems maintained by OFS and Treasury 

bureaus that cross-service OFS; and 2) 

systems that are financially relevant operated 

and supported by financial agents. Combined, 

this framework satisfies OFS’s diverse 

financial, operational, and reporting needs as 

well as OFS’s internal and external reporting 

requirements.

In fiscal year 2017, OFS continued to utilize 

the Core Investment Transaction Flow (CITF), 

TARP’s system of record and accounting 

translation engine. 

In addition, OFS continued to utilize financial 

systems maintained by Treasury 

Departmental Offices and various Treasury 

bureaus. These systems are in compliance 

with federal financial management systems 

requirements and undergo regular 

independent audits.

In fiscal year 2017, OFS continued to devote 

substantial attention to simplifying its 

technology footprint in concert with the 

reduced activity and size of OFS operations. 

The simplification effort helps ensure the 

reliability, maintainability, and controllability 

of OFS technology as TARP programs winddown.

Certain financially relevant systems are 

operated and supported by financial agents, 

which provide services to OFS. The financial 

agency agreements, maintained by the 

Treasury Office of the Fiscal Assistant 

Secretary in support of OFS, require financial 

agents to design and implement suitably 

robust security plans and internal control 

programs. These plans and programs are 

reviewed and approved by OFS on an on-going 

basis.

Legal Compliance

OFS is subject to numerous legislative and 

regulatory requirements that promote and 

support an effective ERM and internal control 

environment. At least on an annual basis, 

OFS conducts a formal process to identify and 

document applicable laws and regulations. 

This process includes the review and 

consideration of Treasury guidance, statutory 

and OMB requirements, as well as 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

24 MANAGEMENT’S DISCUSSION AND ANALYSIS

consultation with OFS program management 

and the Treasury Office of General Counsel. 

OFS program managers are responsible for 

identifying laws and regulations which impact 

their areas, developing policies and 

procedures which ensure compliance with 

those laws and regulations, and disseminating 

information to employees regarding 

compliance responsibilities.

In order to test compliance with laws and 

regulations, OFS maps the requirements of 

each applicable law or regulation to controls 

that support the requirements. The majority 

of the laws and regulations applicable to OFS 

are tested in this manner. In instances where 

OFS cannot leverage specific controls, OFS 

either performs alternative evaluation 

procedures or, through adherence to the 

guidance provided by Treasury, checks that 

controls are in place to meet guidance 

concerns and specifications where they apply.

The results of OFS’s evaluation of compliance 

with applicable laws and regulations are 

reflected in OFS’s assurance statement.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

MANAGEMENT’S DISCUSSION AND ANALYSIS 25

Other Management Information, Initiatives, and Issues

Areas for Improvement

Over the next year, OFS management will focus on maintaining its internal control environment in 

several key areas as follows:

• As programs continue to wind-down, OFS will remain vigilant to maintain effective 

processes and controls. OFS management will take steps to sustain adequate 

segregation of duties and the right level of institutional knowledge among remaining 

staff as the size of the organization decreases. 

• Third-party service providers will continue to support critical services as programs 

continue to wind-down. OFS will oversee and monitor closely these third parties to 

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

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

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

• As OFS programs conclude and staff continues to decrease, OFS plans to streamline the 

number and depth of policies and procedures to make them more efficient. OFS will 

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

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

26 MANAGEMENT’S DISCUSSION AND ANALYSIS

Limitations of the Financial Statements

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

operations of OFS’s TARP programs, consistent with the requirements of 31 U.S.C. 3515(b). While 

the statements have been prepared from the books and records of OFS and the Department of the 

Treasury in accordance with Section 116 of EESA and Generally Accepted Accounting Principles 

(GAAP) for Federal entities and the formats prescribed by OMB, the statements are in addition to 

the financial reports used to monitor and control budgetary resources which are prepared from the 

same books and records. 

The statements should be read with the realization that they are for a component of the U.S.

Government.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

MANAGEMENT’S DISCUSSION AND ANALYSIS 27

A
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

28 MANAGEMENT’S DISCUSSION AND ANALYSIS
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

AUDITOR’S REPORT 29

GOVERNMENT ACCOUNTABILITY OFFICE AUDITOR’S REPORT

441 G St. N.W.

Washington, DC 20548

Independent Auditor’s Report

To the Chief Financial Officer for the Office of Financial Stability

In our audits of the fiscal years 2017 and 2016 financial statements of the Troubled Asset Relief 

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

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

30, 2017, and 2016, are presented fairly, in all material respects, in accordance with 

U.S. generally accepted accounting principles;

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

for TARP as of September 30, 2017; and

• no reportable noncompliance for fiscal year 2017 with provisions of applicable laws,

regulations, contracts, and grant agreements we tested.

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

internal control over financial reporting, which includes an emphasis of matter related to certain 

factors affecting the valuation of TARP equity investments, and required supplementary 

information (RSI)2 and other information included with the financial statements;3 (2) our report

on compliance with laws, regulations, contracts, and grant agreements; and (3) agency 

comments. GAO has the responsibility to audit OFS’s annual financial statements for TARP

under the Emergency Economic Stabilization Act of 2008 (EESA), as amended.4

 1

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

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

implement TARP.

2

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

which are included with the financial statements.

3

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

report.

4

EESA is classified, in part, as amended, at sections 5201 through 5261 of Title 12 of the United States Code. 

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

the public audited fiscal year financial statements for TARP that are prepared in accordance with generally accepted 

accounting principles. Section 116(b) further requires that GAO audit TARP’s financial statements annually in 

accordance with generally accepted auditing standards (GAAS).
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

30 AUDITOR’S REPORT

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, 2017, and 

2016; the related statements of net cost, 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, 2017, 

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) its assessment about the effectiveness of internal control over financial reporting as of 

September 30, 2017, 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 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. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

AUDITOR’S REPORT 31

An audit of internal control over financial reporting involves performing procedures to obtain 

evidence about whether a material weakness exists.5 The procedures selected depend on the 

auditor’s judgment, including the assessment of the risk that a material weakness exists. An 

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

internal control over financial reporting, and evaluating and testing the design and operating 

effectiveness of internal control over financial reporting based on the assessed risk. Our audit of 

internal control also considered OFS’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.

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 provisions of 

applicable laws, including those governing the use of budget authority, regulations, contracts,

and grant agreements, noncompliance with which could have a 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, 2017, and 2016, 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.

 5

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.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

32 AUDITOR’S REPORT

Emphasis of Matter

Valuation of TARP’s Equity Investments

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

equity investments is based on estimates using economic and financial credit subsidy models.

The estimates use entity-specific as well as relevant market data as the basis for assumptions 

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

around any unexpected losses. In valuing the equity investments, OFS management considered 

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

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

statements.6 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 equity investments as of September 30, 

2017, and 2016 (which totaled $93 million and $490 million, respectively), and the amounts that 

OFS will ultimately realize from these assets, and the differences may be material. These 

differences will also affect TARP’s ultimate cost.7

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

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, 2017, based on criteria established under FMFIA. 

During our fiscal year 2017 audit, we identified deficiencies in OFS’s internal control over 

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

deficiencies.8 Nonetheless, these deficiencies warrant OFS management’s attention. We have 

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

separately.

 6

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 equity investments (e.g., dividends, interest, net proceeds 

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

discounted net cash flows related to the Federal Housing Administration refinance program.

7

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.

8

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting

that is less severe than a material weakness, yet important enough to merit attention by those charged with 

governance.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

AUDITOR’S REPORT 33

Other Matters

Required Supplementary Information

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

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

statements. Although the RSI is not a part of the financial statements, FASAB considers this 

information to be an essential part of financial reporting for placing the financial statements in 

appropriate operational, economic, or historical context. We have applied certain limited 

procedures to the RSI in accordance with U.S. generally accepted government auditing 

standards, which consisted of inquiries of management about the methods of preparing the RSI 

and comparing the information for consistency with management’s responses to the auditor’s 

inquiries, the financial statements, and other knowledge we obtained during the audit of the 

financial statements, in order to report omissions or material departures from FASAB guidelines, 

if any, identified by these limited procedures. We did not audit and we do not express an opinion 

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

sufficient evidence to express an opinion or provide any assurance.

Other Information

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

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

analysis and is not a required part of the financial statements or RSI. We read the other 

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

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

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

opinion or provide any assurance on the other information.

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

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

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

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

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

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

Management’s Responsibility

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

agreements applicable to OFS.

Auditor’s Responsibility

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

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

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

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

and grant agreements applicable to OFS.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

34 AUDITOR’S REPORT

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

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

grant agreements disclosed no instances of noncompliance for fiscal year 2017 that would be 

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

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

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

opinion.

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

Agreements

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

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

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

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

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

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

Agency Comments

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

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

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

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

Cheryl E. Clark

Director

Financial Management and Assurance

November 3, 2017
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

AUDITOR’S REPORT 35

Appendix I: Management’s Report on Internal Control over Financial 

Reporting

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

Management’s Report on Internal Control over Financial Reporting 

 

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

process effected by those charged with governance, management, and other personnel, the objectives 

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

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

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

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

applicable laws, including those governing the use of budget authority; regulations; contracts; and 

grant agreements, noncompliance with which could have a material effect on the financial 

statements.

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

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

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

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

control over financial reporting as of September 30, 2017, based on the criteria established under 31 

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

Based on that evaluation, we conclude that, as of September 30, 2017, OFS’s internal control over 

financial reporting was effective.

Lorenzo Rasetti

Chief Financial Officer for the Office of Financial Stability

November 3, 2017
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

36 AUDITOR’S REPORT

Appendix II: OFS Response to Auditor’s Report

DEPARTMENT OF THE TREASURY

 WASHINGTON, D.C. 20220

 

November 3, 2017

Ms. Cheryl E. Clark

Director, Financial Management and Assurance

U.S. Government Accountability Office

441 G Street, N.W.

Washington, DC 20548

Dear Ms. Clark:

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

Stability’s (OFS) fiscal year 2017 financial statements. OFS is proud to receive nine unmodified 

opinions on our financial statements and our internal controls over financial reporting. 

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

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

and financial management efforts.

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

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

Sincerely,

Lorenzo Rasetti

Chief Financial Officer

Office of Financial Stability
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

FINANCIAL STATEMENTS 37

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 

activities 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, 

2017 and 2016. 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 operations for the fiscal years ended 

September 30, 2017 and 2016.

The Statement of Changes in Net Position 

presents the change in OFS’s net position for 

two components, Cumulative Results of 

Operations and Unexpended Appropriations, for 

the fiscal years ended September 30, 2017 and 

2016. The ending balances of both components 

of net position are also reported on the Balance 

Sheet.

The Statement of Budgetary Resources provides 

information about funding and availability of 

budgetary resources and the status of those 

resources for the fiscal years ended September 

30, 2017 and 2016. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

38 FINANCIAL STATEMENTS

Office of Financial Stability - Troubled Asset Relief Program

BALANCE SHEET 

As of September S0L 2017 and 2016

Dollars in Millions 2017 2016

ASSETS

Intragovernmental Assets:

 Fund Balance with Treasury (Note 3) $ 19,442 $ 23,652

Total Intragovernmental Assets 19,442 23,652

Cash on Deposit for Housing Program HNote T) 10 10

Equity InvestmentsL Net HNote 6) 93 490

Total Assets $ 19L5T5 $ 2TL152

LIABILITIES

Intragovernmental Liabilities:

 Accounts Payable and Other Liabilities $ 2 $ 1

 Due to the General Fund (Note 7) 16 86

 Principal Payable to the Bureau of the Fiscal Service (Note 8) 119 469

Total Intragovernmental Liabilities 137 556

Accounts Payable and Other Liabilities 13 33

Liabilities for Treasury Housing Programs Under TARP:

 FHA-Refinance Program (Notes 5 and 6) 2 3

 Making Home Affordable Program (Note 5) 179 262

Total Liabilities $ SS1 $ 85T

Commitments and Contingencies HNote 9)

NET POSITION 

 Unexpended Appropriations $ 19,205 $ 23,298

 Cumulative Results of Operations 9 -

Total Net Position $ 19L21T $ 2SL298

Total Liabilities and Net Position $ 19L5T5 $ 2TL152

The accompanying notes are an integral part of these financial statementsN
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

FINANCIAL STATEMENTS 39

Dollars in Millions 2017 2016

Gross Cost of Operations:

 Program Subsidy Cost (Income) (Note 5 and Note 

 Equity Investment Programs $ (13)   

 FHA-Refinance Program (1) (

 Total Program Subsidy Cost (Income) (1   

 Interest Expense on Borrowings from the Bureau of the Fiscal Service (Note 10) 11 1

 Treasury Housing Programs Under TARP (Note 5) 4,  

 Administrative Cost 97 129

Total Gross Cost of Operations 4,1  

Earned Revenue:

 Dividend and Interest Income - Programs (Note 6) (  

 Interest Income on Financing Account (Note 10) (5  

 Subsidy Allowance Amortization (Note 10) (  

Total Earned Revenue (11) (1

Total Net Cost of Operations $ 4,131  

The accompanying notes are an integral part of these financial statements

Office of Financial Stability - Troubled Asset Relief Program

34A4E-E.4 O

For the Years Ended September 30, 2017 and 20

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

FINANCIAL SYSTEM
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

40 FINANCIAL STATEMENTS

Dollars in Millions

Unexpended 

Appropriations

 Cumulative Results of 

Operations 

Unexpended 

Appropriations

 Cumulative Results of 

Operations 

Beginning Balances $ 23,298   -   27,40   

Budgetary Financing Sources

 Appropriations Received 138 - 825 

 Appropriations Used (4,16   4        

 Other Adjustments - Canceled Authority (71) - (80 

Other Financing Sources - (20) - (71

Total Financing Sources (4,0         

Net Cost of Operations - (4,1     

Net Change (4,0      (  

Ending Balances $ 19,205 $ 9 $ 23,298 

The accompanying notes are an integral part of these financial statements

Office of Financial Stability - Troubled Asset Relief Program

34A4E-E.4 OFC(A.

For the Years Ended September 30, 2017 and 20

2017 2016
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

FINANCIAL STATEMENTS 41

Dollars in Millions

Budgetary 

Accounts

Non-Budgetary 

Credit Reform 

Financing 

Accounts

Budgetary 

Accounts

Non-Budgetary 

Credit Reform 

Financing 

Accounts

BUDGETARY RESOURCES

 Unobligated Balance Brought Forward, October 1 $ 174   59   8,36   

 Recoveries of Prior-Year Unpaid Obligations 61 - 2,03 

 Actual Repayments of Debt, Prior-Year Balances - (3    

 Canceled Authority (71) - (80 

 Other Changes in Unobligated Balances - - (8,159 

Unobligated Balance from Prior-Year Budget Authority, Net 16     2,   

Appropriations 138 - 825 

Borrowing Authority - - - 72

Spending Authority from Offsetting Collections - 121 - 722

TOTAL BUDGETARY RESOURCES (Note 11) $ 302   145   2,9 

STATUS OF BUDGETARY RESOURCES

New Obligations and Upward Adjustments (Total) $ 121 $ 101 $ 2,809   8

Unobligated Balance, End of Year

 Apportioned, Unexpired Accounts 19 24 19

 Unapportioned, Unexpired Accounts 42 20 1 

 Unexpired Unobligated Balance, End of Year 6144 20

 Expired Unobligated Balance, End of Year 120 - 15 

Unobligated Balance, End of Year (Total) 18 44 1

TOTAL BUDGETARY RESOURCES $ 302 $ 145   2,98 

CHANGE IN OBLIGATED BALANCES

Unpaid Obligations:

 Unpaid Obligations Brought Forward, October 1 $ 15,260   -   19,582 

 New Obligations and Upward Adjustments 121 101 2,809 88

 Gross Outlays (4,262) (101) (5,100

 Recoveries of Prior-Year Unpaid Obligations (61) - (2,031

Unpaid Obligations, End of Year 11,05    15,2 

Uncollected Payments from Federal Sources:

 Uncollected Payments Brought Forward, October 1 $ - $ - $ - $ 

 Change in Uncollected Payments - - - -

Uncollected Payments from Federal Sources, End of Year - - - 

OBLIGATED BALANCES

 (Net of Unpaid Obligations and Uncollected Payments Above

Obligated Balance, Net, Brought Forward, October 1   15,26        19,5 

Obligated Balance, Net, End of Year   11,058   -   15,26 

BUDGET AUTHORITY AND OUTLAYS, NE

 Budget authority, Gross $ 138   121   825   

 Actual Offsetting Collections - (43     

 Change in Uncollected Payments, Federal Sources - - - 

 Recoveries of Prior-Year Paid Obligations - - - -

BUDGET AUTHORITY, NET $ 138   (315    82  

 Gross Outlays $ 4,262   101   5,100   

 Actual Offsetting Collections - (43     

 Net Outlays 4,26  (      

 Distributed Offsetting Receipts (91) - (855 

AGENCY OUTLAYS, NET $ 4,171   (3      

The accompanying notes are an integral part of these financial statements

Office of Financial Stability - Troubled Asset Relief Program

34A4E-E.4 OF B5$

For the Years Ended September 30, 2017 and 20

2017 2016
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

42 NOTES TO THE FINANCIAL STATEMENTS

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). 

EESA 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. 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. The Consolidated 

Appropriations Act, 2016 (the Act), gave the Secretary 

of the Treasury the ability to commit an additional 

$2.0 billion in TARP funds to current Hardest Hit 

Fund (HHF) participants. The additional $2.0 billion 

was obligated by Treasury as of June 2016. OFS 

currently does not have the authority to commit new 

program funds. OFS had utilized (including purchases 

made, legal commitments to make purchases and 

offsets for guarantees made) $454.5 billion as of 

September 30, 2017 and $454.6 billion as of 

September 30, 2016.

During fiscal year 2017, the TARP administered the 

following programs: the Capital Purchase Program 

(CPP); the Community Development Capital 

Initiative (CDCI); and the Treasury Housing 

Programs Under TARP. During fiscal year 2016, the 

Public-Private Investment Program (PPIP) and Term 

Asset-Backed Securities Loan Facility (TALF) 

programs were closed. See Notes 5 and 6 for details 

regarding these programs.

While these financial statements reflect the activities

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 consists of 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.

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 2017

NOTES TO THE FINANCIAL STATEMENTS 43

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 

revised. 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 equity investment and FHA-Refinance 

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, 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 Equity 

Investments tabulated by the Level of 

Observation of the inputs used in the valuation 

process. Level 1 assets are measured using 

quoted market prices for identical assets. Level 2 

assets are measured using observable market 

inputs other than direct market quotes. Level 3 

assets are measured using unobservable inputs.

The OFS uses the present value accounting 

concepts embedded in SFFAS No. 2, Accounting 

for Direct Loans and Loan Guarantees, as 

amended (SFFAS No. 2), to derive fair value 

measurements for its equity investments in 

Levels 2 and 3. The OFS concluded that some of 

the equity investments, such as preferred stock, 

were similar to direct loans since there was a 

stated rate and a redemption feature which, if 

elected, required repayment of the amount 

invested. Furthermore, consideration of market 

risk provided a basis to arrive at a fair value 

measurement. Therefore, the OFS concluded that 

SFFAS No. 2 (as more fully discussed below) 

should be followed for reporting and disclosure 

requirements of its equity investments. 

The OFS applies the provisions of FCRA for 

budgetary accounting and the associated FASAB 

accounting standard SFFAS No. 2 for financial 

reporting for loan guarantee programs. Liabilities 

under the FHA-Refinance Program are recognized 

at the net present value of their estimated future 

cash flows when the FHA guarantees loans. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

44 NOTES TO THE FINANCIAL STATEMENTS

For equity investments, the subsidy allowance 

account represents the difference between the face 

value of the outstanding 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 equity 

investment. 

The OFS recognizes dividend income associated 

with equity investments when declared by the 

entity in which the OFS has invested and when 

received in relation to any repurchases, 

exchanges, and restructurings. The OFS reflects 

changes, referred to as reestimates, in its 

determination of the value of equity investment 

and FHA-Refinance 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 Equity Investments, Net, and the Liabilities 

for Treasury Housing Programs Under TARP on 

the Balance Sheet, and related Program Subsidy 

Cost (Income) on the Statement of Net Cost (see 

Note 6).

The most significant differences between actual 

results and estimates may occur in the valuation 

of OFS programs. These valuation estimates are 

sensitive to slight changes in model assumptions, 

such as general economic conditions, specific stock 

price volatility of the entities in which the OFS 

has an equity interest, estimates of expected 

default, and prepayment rates. Forecasts of 

future financial results have inherent uncertainty, 

and Equity Investments, Net, as of fiscal yearends include relatively illiquid assets with values 

that are sensitive to future economic conditions 

and other assumptions. Estimates are also 

prepared for the FHA-Refinance Program to 

determine the liability for losses. 

Credit Reform Accounting

The OFS accounts for the cost of equity 

investment and FHA-Refinance 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 

equity investment and FHA-Refinance programs, 

and disburse 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 equity 

investment and FHA-Refinance 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 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

NOTES TO THE FINANCIAL STATEMENTS 45

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 of equity investment and 

FHA-Refinance 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

and financing 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. Other changes in unobligated balances 

represent unavailable funds from appropriations 

fulfilled. See Note 3. 

Equity Investments, Net

Equity Investments, Net represents the estimated 

net outstanding amount of the OFS equity 

investments. The equity investment balances 

have been determined in accordance with the

provisions of SFFAS No. 2 and are recorded at fair 

value (see Note 6). Write-offs of equity 

investment balances (presented in Note 6 table) 

are recorded when a legal event occurs, such as a 

bankruptcy or liquidation with suspension or 

termination of collection action, or extinguishment 

of a debt instrument by agreement and there is 

currently no expectation of further collection. 

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

Statement of Net Cost because the written-off 

asset is fully reserved. Therefore, the write-off 

removes the asset balance and the associated 

subsidy allowance. 

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, 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

46 NOTES TO THE FINANCIAL STATEMENTS

equipment or software on its Balance Sheet as of 

September 30, 2017 and 2016.

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 loan, equity investment, and 

FHA-Refinance programs as of September 30, 

2017 and 2016. See Notes 6 and 7.

Principal Payable to the Bureau of the 

Fiscal Service

Principal Payable to the Bureau of the Fiscal 

Service (Fiscal Service) is the amount due for 

equity investments 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 downward reestimates to the general 

fund, as necessary. See Note 8.

Liabilities for Treasury Housing 

Programs Under TARP

There are three initiatives in the Treasury 

Housing Programs: the Making Home Affordable 

Program, the Housing Finance Agency HardestHit 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, 2017 and 2016, is 

based on information about loan modifications 

reported by participating servicers for the Making 

Home Affordable Program. See Note 5.

At the end of fiscal year 2010, the OFS entered 

into a loss-sharing agreement with the FHA to 

support a program in which FHA would guarantee 

refinancing for borrowers whose homes are worth 

less than the remaining amounts owed under 

their mortgage loans, i.e. “underwater.” The 

liability for OFS’s share of losses was determined 

under credit reform accounting and shown as 

FHA-Refinance Program, one of the Liabilities for 

Treasury Housing Programs Under TARP, on the 

Balance Sheet. See Notes 4, 5 and 6.

Unexpended Appropriations

Unexpended Appropriations represents the OFS 

undelivered orders and unobligated balances 

reduced by canceled authority in budgetary 

appropriated funds as of September 30, 2017 and 

2016.

Cumulative Results of Operations

Cumulative Results of Operations, presented on 

the Balance Sheet and on the Statement of 

Changes in Net Position, represents the net 

results of the OFS operations not funded by 

appropriations or some other source, such as 

borrowing authority, from inception through fiscal 

year-end. Cumulative Results of Operations in 

2017 and 2016 included $10 million, reported as 

Cash on Deposit for Housing Program on the 

Balance Sheet, see Note 4.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

NOTES TO THE FINANCIAL STATEMENTS 47

Other Financing Sources

The Other Financing Sources line in the 

Statement of Changes in Net Position for each 

year consists primarily of downward reestimates. 

Each program’s reestimates, upward and

downward, are recorded separately, not netted 

together.

Leave

A liability for the OFS employees’ annual leave is 

accrued as it is earned and reduced as leave is 

taken. Each year the balance of accrued annual 

leave is adjusted to reflect current pay rates as 

well as forfeited “use or lose” leave. Amounts are 

unfunded to the extent current or prior year 

appropriations are not available to fund annual 

leave earned but not taken. Sick leave and other 

types of non-vested leave are expensed as taken. 

The liability is included in the Balance Sheet 

amount for Accounts Payable and Other 

Liabilities.

Employee Health and Life Insurance 

and Workers’ Compensation Benefits

The OFS employees may choose to participate in 

the contributory Federal Employees Health 

Benefit and the Federal Employees Group Life 

Insurance Programs. The OFS matches a portion 

of the employee contributions to each program. 

Matching contributions are recognized as current 

operating expenses.

The Federal Employees’ Compensation Act 

(FECA) provides income and medical cost 

protection to covered federal civilian employees 

injured on the job, and employees who have 

incurred a work-related injury or occupational 

disease. Future workers’ compensation estimates 

are generated from an application of actuarial 

procedures developed to estimate the liability for 

FECA benefits. The actuarial liability estimates 

for FECA benefits include the expected liability 

for death, disability, medical, and miscellaneous 

costs for approved compensation cases. Any 

FECA amounts relating to OFS employees are 

expensed as incurred.

Employee Pension Benefits

The OFS employees participate in either the Civil 

Service Retirement System (CSRS) or the Federal 

Employees’ Retirement System (FERS) and Social 

Security. These systems provide benefits upon 

retirement and in the event of death, disability or 

other termination of employment and may also 

provide pre-retirement benefits. They may also 

include benefits to survivors and their 

dependents, and may contain early retirement or 

other special features. The OFS contributions to 

retirement plans and Social Security, as well as 

imputed costs for pension and other retirement 

benefit costs administered by the Office of 

Personnel Management, are recognized on the 

Statement of Net Cost as Administrative Cost. 

Federal employee benefits also include the Thrift 

Savings Plan (TSP). For FERS employees, a TSP 

account is automatically established and the OFS 

matches employee contributions to the plan,

subject to limitations. The matching 

contributions are recognized as Administrative 

Costs on the Statement of Net Cost. 

Related Parties

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

48 NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. FUND BALANCES WITH TREASURY

Fund Balances with Treasury (FBWT), by fund type and status, as of September 30, 2017 and 2016, are 

presented in the following table.

(Dollars in Millions) 2017 2016

Fund Balances:

 General Funds $ 19,399   2

 Financing Funds   

Total Fund Balances $ 19,442   2

Status of Fund Balances:

 Unobligated Balances

 Available $ 3   

 Unavailable 182 205

 Obligated Balances Not Yet Disbursed 11,058 15,2

 Non-Budgetary FBWT1 8,159 8,1

Total Status of Fund Balances $ 19,442   2

As of September 30,

1 bon-Budgetary FBWT represents Housing trogram amounts no longer available for obligation, since the 

purpose for which the appropriation was enacted has been fulfilled.

NOTE 4. CASH ON DEPOSIT FOR HOUSING PROGRAM

As of September 30, 2017 and 2016, the OFS had 

$10 million, on deposit with a commercial bank to 

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

See Note 5 for further details regarding the FHARefinance Program. Under terms of the agreement 

with the commercial bank, unused funds will be 

returned to the OFS upon the termination of the

program.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

NOTES TO THE FINANCIAL STATEMENTS 49

NOTE 5. TREASURY HOUSING PROGRAMS UNDER TARP

Fiscal years 2017 and 2016 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 (Tier 1, Tier 2, 

 Streamline)

Provides for upfront, monthly and annual incentives to servicers, borrowers and 

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

modifying qualified first liens, conditional on borrower performance.

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

first lien HAMP modification.

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

HAMP modification, by simplifying and streamlining the short sale and deed-inlieu 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.

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

conjunction with a HAMP modification.

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

HHF Provides locally tailored assistance to states hardest hit by the housing market 

downturn, to assist struggling homeowners and help stabilize housing markets.

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

mortgage loans not currently insured by FHA into FHA insured mortgages.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

50 NOTES TO THE FINANCIAL STATEMENTS

Making Home Affordable 

In early 2009, Treasury launched MHA to help 

struggling homeowners avoid foreclosure. Since 

its inception, MHA has helped homeowners avoid 

foreclosure by providing a variety of solutions to 

modify their mortgages, get temporary 

forbearance if they are unemployed, or transition 

out of homeownership via a short sale or deed-inlieu 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 FHA and the U.S. Department 

of Agriculture (USDA). 

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. 

The MHA program terminated on December 31, 

2016, except with respect to certain loan 

modification applications made before such date, 

per December 2015, Section 709(b) of the 

Consolidated Appropriations Act, 2016 (the Act). 

Hardest Hit Fund

The HHF was implemented in fiscal year 2010, 

and provides locally tailored assistance to states 

hit hardest by the housing market downturn, to 

assist struggling homeowners and help stabilize 

housing markets through each state’s Housing 

Finance Agency (HFA). States that meet the 

criteria for this program, consisting of Alabama, 

Arizona, California, Florida, Georgia, Illinois, 

Indiana, Kentucky, Michigan, Mississippi, 

Nevada, New Jersey, North Carolina, Ohio, 

Oregon, Rhode Island, South Carolina, Tennessee, 

as well as the District of Columbia, receive 

funding from the OFS. Approved states develop 

and roll out their own programs with timing and 

types of programs targeted to address the specific 

needs and economic conditions of their state. An 

additional $2.0 billion in commitments was 

authorized for HHF by the Act in December 2015. 

These funds were obligated to 18 of the 19 HFAs 

in 2016. States have until December 31, 2021 to 

utilize all HHF funding.

FHA-Refinance Program

The FHA-Refinance Program is intended to 

encourage refinancing of existing underwater 

mortgage loans not currently insured by FHA into 

FHA-insured 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 were able to refinance into 

FHA-guaranteed mortgages through December 

31, 2016 and OFS will honor its share of claims 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

NOTES TO THE FINANCIAL STATEMENTS 51

against the letter of credit through December 31, 

2022. Cumulatively, as of September 30, 2017

and September 30, 2016, 7,234 and 7,190 loans 

had been refinanced through the program,

respectively, of which 4,200 and 4,156 are subject 

to potential Treasury reimbursement. 

OFS originally deposited $50 million with a 

commercial bank as its agent to administer 

payment of claims under the program; that 

amount was reduced to $10 million in 2015; 

cumulatively, $242,934 in claim payments have 

been made as of September 30, 2017, of which 

$35,553 was disbursed during fiscal year 2017. 

See Notes 4 and 6 for further details about the 

deposit and the program. OFS paid $0.2 million 

in fiscal year 2017 and $0.2 million in fiscal year 

2016 to maintain the letter of credit.

The table below recaps housing program 

commitments as of September 30, 2017, and 

payments and accruals as of September 30, 2017

and 2016.

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, 20171 2017 2016 2017 201

aHA $ 27,780 $ 2,454 $ 3,253 $ 179 $ 262

HFA Hardest Hit Fund 9,600 $ 1,677 1,035 - -

FHA - Refinance2 45 - - - -

Totals $ 37,425 $ 4,131 $ 4,288 $ 179 $ 262

1 Total commitments represent amounts obligated to support all of OFS's Housing programs. As of September 30, 2017, $10,836 million remains 

available to be spent. FHA- Refinance commitments include $18 million for administrative expenses to administer the Letter of Credit facility.

2

Payments do not include $10 million of reserve funds transferred, shown on Balance Sheet as Cash on Deposit for Housing Program, nor the subsid

cost to fund OFS's estimated share of defaults, which establishes the liability for losses, see Note 6. Payments are the FHA-Refinance Letter of Credi

administrative expense only.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

52 NOTES TO THE FINANCIAL STATEMENTS

NOTE 6. EQUITY INVESTMENTS, NET AND FHA-REFINANCE PROGRAM

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 currently consist 

of a loss-sharing program under the TARP. The 

table below recaps OFS remaining programs by title 

and type:

Program Program Type

Direct Loans and Equity Investments

 Capital Purchase Program Equity Investment/Subordinated Debentures

 Community Development Capital Initiative Equity Investment/Subordinated Debentures

 Automotive Industry Financing Program Equity Investment and Direct Loan

Other Credit Program

 FHA-Refinance Program Loss-sharing Program with FHA

Equity Investment Programs

Capital Purchase Program

In October 2008, the OFS began implementation of 

the TARP with the 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 had a stated dividend rate of 5.0 

percent through year five, which increased to 9.0 

percent in subsequent years. In addition to the 

senior preferred stock, the OFS received warrants, 

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

EESA, from public QFIs to purchase a number of 

shares of common stock. QFIs that are Subchapter 

S corporations issued subordinated debentures 

instead of preferred stock (to comply with tax code 

regulations) with interest rates of 7.7 percent for the 

first five years and 13.8 percent thereafter. 

The OFS received warrants from non-public QFIs for 

the purchase of additional senior preferred stock (or 

subordinated debentures if appropriate) with a 

stated dividend rate of 9.0 percent (13.8 percent 

interest rate for subordinate debentures) and a 

liquidation preference equal to 5.0 percent of the 

total senior preferred stock (additional subordinate 

debenture) investment. These warrants were 

immediately exercised and resulted in the OFS 

holding additional senior preferred stock 

(subordinated debentures) (collectively referred to as 

“warrant preferred stock”) of non-public QFIs.

In addition to the above transactions, the OFS 

entered into other transactions with various 

financial institutions including exchanging existing 

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

preferred shares for shares of mandatorily 

convertible preferred securities and selling preferred 

shares to financial institutions that were acquiring 

the QFIs that have issued the preferred shares.

Generally, these transactions are entered into with 

financial institutions in poor financial condition with 

a high likelihood of failure. As such, in accordance

with SFFAS No. 2, these transactions are considered 

workouts and not modifications. The changes in cost 

associated with these transactions are captured in 

the year-end reestimates. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

NOTES TO THE FINANCIAL STATEMENTS 53

In fiscal year 2017, other sales, redemptions, other 

receipts, and dividends, resulted in net proceeds of 

$84 million.

In fiscal year 2016, other sales, redemptions, other 

receipts, and dividends, resulted in net proceeds of 

$29 million.

During fiscal year 2017 there was one institution 

declaring bankruptcy. During fiscal year 2016, there 

were no institutions closed by their regulators or 

declaring bankruptcy.

There was one CPP institution written off during 

fiscal years 2017 and none during fiscal year 2016.

The following tables provide key data points related 

to the CPP for the fiscal years ending September 30, 

2017 and 2016:

CPP Participating Institutions

2017 2016

Number of Institutions Funded 707 707

Institutions Paid in Full, Merged or Investments Sold (50   

Institutions Transferred to CDCI (28) (2

Institutions Refinanced to SBLF (137  (

Institutions Written Off After Bankruptcy or Receivership (3  

Number of Institutions with Outstanding OFS Investments 6 12

Institutions in Bankruptcy or Receivership (not written off) - 

Number of CPP Institutions Valued at Year-End 6 12

Of the Institutions Valued, Number that Have Missed One or More Dividend Payments 5 1

CPP Investments

(Dollars in Millions) Fiscal Year 2017 Fiscal Year 201

Outstanding Beginning Balance, Investment in CPP Institutions, Gross   210   2

Repayments and Sales of Investments (79) (

Write-Offs (12) 

Losses from Sales and Repurchases of Assets (71) 

Outstanding Balance, Investment in CPP Institutions, Gross   48   

Interest and Dividend Collections $ - $ -

Net Proceeds from Sales and Repurchases of Assets Less Than Cost $ (67) $ (

Cumulative as of September 3

Community Development Capital Initiative

In February 2010, the OFS announced the 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. CDFI banks and thrifts could 

apply to receive capital up to 5 percent of riskweighted assets while CDFI credit unions could 

apply for up to 3.5 percent of total assets. To 

encourage repayment while recognizing the unique 

circumstances facing CDFIs, the dividend rate 

increases to 9 percent after eight years.

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 years 2017 and 2016, there were no 

CDCI institutions written off. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

54 NOTES TO THE FINANCIAL STATEMENTS

In fiscal year 2017, OFS received $325 million in 

repayments and $3 million in dividends and interest 

from its CDCI investments with, as of September 30, 

2017, an outstanding balance of $75 million and 

value of $58 million.

In fiscal year 2016, OFS received $26 million in 

repayments and $9 million in dividends and interest 

from its CDCI investments with, as of September 30, 

2016, an outstanding balance of $420 million and 

value of $379 million. 

Automotive Industry Financing Program

General Motors Company and General Motors 

Corporation

In the period ended September 30, 2009, the OFS 

provided $51.0 billion to General Motors 

Corporation (Old GM) through various loan 

agreements including the initial loan for general and 

working capital purposes, auto supplier and 

warranty programs, and the final loan for debtor in 

possession (DIP) financing while Old GM was in 

bankruptcy. Since 2014, the OFS retained no 

ownership of GM. OFS received a cumulative total 

of $39.7 billion in stock sale proceeds, loan 

repayments, dividends and interest on the GM 

program.

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. Because OFS did 

not expect to recover any significant additional 

proceeds from this claim, OFS recognized a write-off 

of the remaining $826 million in fiscal year 2014 

resulting in no outstanding balance since September 

30, 2014. During fiscal years 2017 and 2016, OFS 

recovered $5 million and $3 million, respectively, on 

this administrative claim.

In August 2016, Treasury along with Export 

Development Canada (EDC), which jointly financed 

the administration of the General Motors 

bankruptcy, entered into a settlement with the 

Unsecured Creditors Committee of General Motors 

Corporation (UCC) to split any proceeds of the 

Avoidance Action Trust (AAT) litigation, with 

Treasury and EDC receiving 30 percent and the 

unsecured creditors receiving 70 percent. As a 

condition of the settlement, OFS provided an 

advance of $12.6 million to the AAT to fund the 

ongoing operating and legal costs associated with 

the litigation. This settlement yields the most 

favorable attainable economic outcome for OFS to 

recover funds related to this claim. 

Chrysler Group LLC and Chrysler Holding LLC

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. Since 2011, the OFS had no 

remaining interest in Chrysler. 

In fiscal year 2016, the bankruptcy liquidation trust 

related to Old Chrysler was closed, and OFS 

received final proceeds of $2 million. 

OFS received a cumulative total of $11.2 billion in

loan repayments, interest and additional payments.

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. Since 2015 OFS had no remaining 

interest in GMAC/Ally. 

In fiscal year 2016, the GMAC/Ally investment 

program was closed. 

OFS received a cumulative total of $19.6 billion in 

sales proceeds, dividends, and additional payments 

on its initial investment.

Valuation Methodology 

The OFS applies fair value and the provisions of 

SFFAS No. 2 to account for equity investments and 

the FHA-Refinance Program. 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 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

NOTES TO THE FINANCIAL STATEMENTS 55

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 using 

market prices of similar securities to estimate an 

appropriate market-adjusted discount rate that 

results in measuring equity investments at fair 

value. The adjustment for market risk for loans is 

intended to capture the risk of unexpected losses, 

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

proceeds that would be expected to be received if the 

loans were sold to a market participant. The OFS 

uses market observable inputs, when available, in 

developing cash flows and incorporating the 

adjustment required for market risk. For purposes 

of this disclosure, the OFS has classified its 

programs’ asset valuations as follows, based on the 

observability of inputs that are significant to the 

measurement of the asset:

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

measurement of assets in this classification is 

based on direct market quotes for the specific 

asset, e.g. quoted prices of common stock.

• Significant Observable Inputs (Level 2): The 

measurement of assets in this classification is 

primarily derived from market observable data, 

other than a direct market quote, for the asset. 

This data could be market quotes for similar 

assets for the same entity. 

• Significant Unobservable Inputs (Level 3): The 

measurement of assets in this classification is 

primarily derived from inputs which generally 

represent management’s best estimate of how a 

market participant would assess the risk 

inherent in the asset. These unobservable 

inputs are used because there is little to no 

direct market activity.

The following table displays the assets held by the 

observability of inputs significant to the 

measurement of each value. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

56 NOTES TO THE FINANCIAL STATEMENTS

(Dollars in Millions

Quoted 

Prices for 

Identical 

Assets 

(Level 1)

Significant 

Observable 

Inputs 

(Level 2)

Significant 

Unobservable 

Inputs 

(Level 3) Total

Program

 CPP $ 6 $ - $ 29 $ 3

 CDCI 5 - 53 5

Total TARP Programs $ 11 $ - $ 82 $ 9

(Dollars in Millions

Quoted 

Prices for 

Identical 

Assets 

(Level 1)

Significant 

Observable 

Inputs 

(Level 2)

Significant 

Unobservable 

Inputs 

(Level 3) Total

Program

 CPP $ 71 $ - $ 40 $ 11

 CDCI 12 - 367 3

Total TARP Programs $ 83 $ - $ 407   

As of September 30, 20

As of September 30, 20

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 

Investments5

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 approach 

to estimate the projected cash flows due to the 

Treasury based on market pricing data and the 

strength of a given institution’s balance sheet. Each 

institution’s performance is subject to uncertainty. 

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

In fiscal year 2014, OFS implemented a new 

estimation methodology in its model for its 

remaining equity investments. The new model was 

implemented as the risk profile of the remaining 

equity investments within the TARP portfolio 

evolved over time and as the portfolio as a whole 

continued to wind-down. Within the new model, 

some institutions are increasingly likely to default 

or to miss the preferred dividends as the quality of 

their assets deteriorates or the level of capital they 

have available to absorb losses declines as a share of 

their assets. The probability of default was 

estimated based on the performance of a large 

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

behavior of the TARP’s own equity investments. At 

the other end of the spectrum, institutions are 

increasingly likely to call their preferred shares over 

time as their balance sheets improve. Inputs to the 

model included institution-specific accounting data 

obtained from regulatory filings, an institution’s 

stock price volatility and historical bank failure 

information, as well as market pricing data of 

comparable securities trading in the market. The 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

NOTES TO THE FINANCIAL STATEMENTS 57

market risk adjustment is estimated by grouping 

institutions with similar financial performance and 

applying credit spreads from similar securities.

For both its fiscal years 2017 and 2016 models, 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.

Automotive Industry Financing Program

OFS has had no investments remaining since 2015,

and the Ally equity program was closed in fiscal year 

2016.

Subsidy Cost and Reestimates

The recorded subsidy cost of equity investments or 

the FHA-Refinance 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 2017, there were no modifications 

to any of the remaining programs.

During fiscal year 2016, a modification occurred in 

the CDCI program as a result of the early 

repurchase option announced in August 2016 that 

allowed remaining participants to repurchase their 

outstanding securities at a fair market value. This 

resulted in subsidy cost of $25 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 2017 and 2016, financial statement 

reestimates for all programs, except the FHARefinance program, were performed using actual 

financial transaction data through September 30. 

For fiscal years 2017 and 2016 market and security 

specific data publicly available as of September 30 

were used. FHA-Refinance reestimates used actual 

financial transaction data through August 31.

Net downward reestimates for the fiscal years ended 

September 30, 2017 and 2016, totaled $14 million 

and $75 million, respectively. Descriptions of the 

reestimates, by OFS Program, are as follows:

Capital Purchase Program

The $5 million downward reestimate for CPP for 

fiscal year ended September 30, 2017 was the result 

of repayments and improved market values.

The $38 million downward reestimate for CPP for 

the fiscal year ended September 30, 2016 was the 

result of repayments and improved market values.

Community Development Capital Initiative

The $3 million downward reestimate for CDCI for 

fiscal year ended September 30, 2017 was the result 

of repayments and improved market values.

The CDCI program experienced improved market 

values and repayments in full, resulting in a $42 

million downward reestimate for the fiscal year 

ended September 30, 2016.

 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

58 NOTES TO THE FINANCIAL STATEMENTS

Automotive Industry Financing Program

For fiscal year ended September 30, 2017 a $5 

million downward reestimate was due to collections 

related to the Old GM.

For the fiscal year ended September 30, 2016 a $7 

million upward reestimate was due mostly to an 

advance to the Avoidance Action Trust to support 

ongoing litigation. 

Summary Table

The following table recaps gross equity investments, 

subsidy allowance, net equity investments, 

reconciliation of subsidy cost allowance and subsidy 

cost, by TARP program, as of and for the fiscal years 

ended September 30, 2017 and 2016. OFS authority 

expired October 3, 2010 and no commitments were 

made thereafter, so there were no investment 

program budget execution subsidy rates for fiscal 

years 2017 and 2016.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

NOTES TO THE FINANCIAL STATEMENTS 59

Troubled Asset Relief Program Equity Investments

(Dollars in Millions) TOTAL CPP AIFP CDCI

As of September 30, 20

Equity Investment Programs:

Equity Investments Outstanding, Gross $ 123   48   -  

Subsidy Cost Allowance (30  (     

Equity Investments Outstanding, Net $ 93   35   -  

Obligations for Investments not yet Disbursed $ - $ - $ - $ -

Reconciliation of Subsidy Cost Allowance:

Balance, Beginning of Period $ 140   99   -  

 Interest and Dividend Revenue  - -

 Net Proceeds from Sales and Repurchases of Assets

 Less than Cost (82) (67    (

 Write-Offs (12) (12   

 Net Interest Expense on Borrowings from Fiscal Service

 and Financing Account Balance (6) (2   

Balance, End of Period, Before Reestimate       

 Subsidy Reestimates Upward (Downward), Ne  (       

Balance, End of Period $ 30   13   -  

Reconciliation of Subsidy Cost (Income)

 Subsidy Reestimates Upward (Downward), Ne  (       

Total Equity Investment Programs

 Subsidy Cost (Income) $ (13)   (5    ( 

(Dollars in Millions) TOTAL CPP AIFP CDCI

As of September 30, 20

Equity Investment Programs:

Equity Investments Outstanding, Gross $ 630   210   -   

Subsidy Cost Allowance (140  (9    

Equity Investments Outstanding, Net $ 490   111   -   

Obligations for Investments not yet Disbursed $ - $ - $ - $ -

Reconciliation of Subsidy Cost Allowance:

Balance, Beginning of Period $ 232   169   -  

 Subsidy Cost for Modifications 25 - - 25

 Interest and Dividend Revenue 9 - - 9

 Net Proceeds from Sales and Repurchases of Assets

 Less than Cost (37  (    

 Net Interest Expense on Borrowings from Fiscal Service

 and Financing Account Balance (16) (2    

Balance, End of Period, Before Reestimate  2       

 Subsidy Reestimates Upward (Downward), Ne  (       

Balance, End of Period $ 140   99   -  

Reconciliation of Subsidy Cost (Income)

 Subsidy Cost (Income) for Modifications $ 25 $ - $ - $ 2

 Subsidy Reestimates Upward (Downward), Ne  (       

Total Equity Investment Programs

 Subsidy Cost (Income) $ (48)   (3       
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

60 NOTES TO THE FINANCIAL STATEMENTS

FHA-Refinance Program

As discussed in Note 5, the OFS entered into a losssharing agreement with the FHA to support a 

program in which FHA guarantees refinancing of 

borrowers whose homes were worth less than the 

remaining amounts owed under their mortgage 

loans. 

During fiscal year 2017, $9 million of new loans 

were guaranteed by the FHA under this program 

that could require a Treasury contribution. 

During fiscal year 2016, no Treasury contribution 

was required for new loans guaranteed by FHA 

under this program.

Cumulatively, as of September 30, 2017 and 2016, 

4,200 and 4,156 loans, respectively, that FHA 

guaranteed, with a total value of $620 and $611 

million, had been refinanced under the program that 

could require a Treasury contribution. 

OFS’s maximum exposure related to FHA’s 

guarantee totaled $23 million and $27 million at 

September 30, 2017 and 2016, respectively. OFS’s 

guarantee resulted in a liability of $2 million at 

September 30, 2017 and a liability of $3 million at 

September 30, 2016. The liability was calculated, 

using credit reform accounting, as the present value 

of the estimated future cash outflows for the OFS’s

share of losses incurred on any defaults of the FHA 

guaranteed loans. Cumulatively, as of September 

30, 2017 and 2016, $242,934 and $207,381 of claims 

had been paid by OFS under the program, 

respectively. 

At September 30, 2017 and 2016, OFS’s obligation 

for subsidy for potential new FHA guaranteed loans 

under the program was $24 million and $100

million, respectively. 

Budget subsidy rates for the program, entirely for 

defaults, were set at 0.8 percent for loans 

guaranteed in fiscal year 2017 (loans endorsed by 

FHA from October 1, 2016 to December 31, 2016).

The program recorded $1 million and $2 million in 

downward reestimates, for fiscal years 2017 and 

2016, respectively, due to lower than projected 

defaults.

The following table details the changes in the FHARefinance Program liability and the subsidy cost for 

the program during fiscal years 2017 and 2016. 

FHA- Refinance Program

(Dollars in Millions) 2017 201

Balance, Beginning of Period $3  

 Subsidy Cost for Guarantees (Defaults) - 

Balance, End of Period, Before Reestimate 

 Subsidy Reestimates - Upward (Downward), Ne  (  

Balance, End of Period $ 2 $

Reconciliation of Subsidy Cost (Income

 Subsidy Cost for Guarantees (Defaults) $ - $ 

 Subsidy Reestimates - Upward (Downward), Ne  (  

Total Subsidy Cost (Income) $ (1)   

Fiscal Year
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

NOTES TO THE FINANCIAL STATEMENTS 61

NOTE 7. DUE TO THE GENERAL FUND

As of September 30, 2017, the OFS accrued $16

million of downward reestimates payable to the 

General Fund. As of September 30, 2016, the OFS 

accrued $86 million 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) 

The equity investment and the FHA-Refinance 

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 

downward reestimates (these reduce program 

subsidy cost) in advance of receiving the expected 

cash flows that cause the 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, 2017 and 2016 were as follows: 

(Dollars in Millions) 2017 2016

Beginning Balance, Principal Payable to the Fiscal Service $ 469   

 New Borrowings - 72

 Repayments (350  (

Ending Balance, Principal Payable to the Fiscal Service $ 119 $ 4

As of September 30,

Borrowings from the Fiscal Service by TARP program, outstanding as of September 30, 2017 and 2016, were 

as follows:

(Dollars in Millions) 2017 2016

CPP $ 39 $ 8

CDCI 80 37

AIFP - 1

Total Borrowings Outstanding $ 119 $ 46

As of September 30,

As of September 30, 2017, borrowings carried 

remaining terms ranging from 21 to 24 years, with 

interest rates from 2.96 percent to 3.80 percent. As 

of September 30, 2016, borrowings carried 

remaining terms ranging from 6 to 25 years, with 

interest rates from 2.72 percent to 3.80 percent. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

62 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 Office of General Counsel, the 

ultimate resolution of these legal actions and claims 

will not have a materially adverse effect on the OFS 

financial statements, except for the pending legal 

action described below which may have a materially 

adverse impact on the financial statements 

depending on the outcome of the case. Contingent 

liabilities related to litigation are recorded in the 

financial statements if and when losses are 

determined to be probable and measurable. 

Contingent liabilities are disclosed where the 

conditions for liability recognition have not been met 

and the likelihood of unfavorable outcome is more 

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

Treasury Judgment Fund, the related cost is 

allocated to the appropriate federal entity, which 

records the cost and an offsetting financing source in 

its financial statements. 

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

Plaintiff is an American International Group (AIG) 

shareholder that brought suit on behalf of two 

putative classes of shareholders alleging that the 

government violated the Fifth Amendment by 

illegally exacting or taking property without just 

compensation. One class, the Credit Agreement 

Class, claimed that the Fifth Amendment was 

violated when a majority share of AIG’s equity and 

voting rights was conveyed in connection with an 

$85 billion loan that rescued AIG during the 2008 

financial crisis. Starr also asserted a Fifth 

Amendment violation on behalf of the second class, 

the Reverse Stock Split Shareholder Class, that a 

June 2009 reverse stock split constituted a taking of 

the common stockholders’ asserted right to a 

shareholder vote on whether to approve a reverse 

split of AIG’s common stock. The Court of Federal 

Claims held that the Credit Agreement Shareholder 

Class shall prevail on liability, but shall recover zero 

damages, and that the Reverse Stock Split 

Shareholder Class shall not prevail on liability or 

damages. Both the Plaintiff and the United States 

appealed to the United States Court of Appeals for 

the Federal Circuit. The Federal Circuit issued a 

decision concluding Plaintiff-Appellant lacks 

standing to pursue the equity-acquisition claims 

directly, as those claims belong exclusively to AIG. 

The Federal Circuit concluded that the Court did not 

err in denying relief for Plaintiff's reverse-stock-split 

claims and therefore vacated the judgment that the 

government committed an illegal exaction and 

remanded with instructions to dismiss the equityacquisition claims that seek direct relief. The 

Federal Circuit affirmed the judgment as to the 

denial of direct relief for the reverse-stock-split 

claims. On October 6, 2017, Plaintiff-Appellant 

petitioned the Supreme Court for certiorari.

The Department of Justice (DOJ), which is 

representing the United States Treasury and the 

Board of Governors of the Federal Reserve System 

in this lawsuit, is unable to determine the likelihood 

of a favorable or unfavorable outcome or make an 

estimate of potential loss, if any, at this time. In 

addition, if an unfavorable outcome were to occur, 

OFS believes that the settlement would be paid by 

the Treasury Judgment Fund. Accordingly, if an 

unfavorable outcome were deemed probable and 

measureable and the related cost is allocated to 

OFS, then OFS would record an imputed cost and 

offsetting financing source in its financial 

statements.

In addition, the OFS pays for a portion of the Starr 

litigation expenses incurred by DOJ based on an 

Inter-Agency Agreement (IAA) between the OFS and 

DOJ. Under the terms of the IAA, OFS paid 

approximately $2 million to DOJ for expenses 

invoiced to date. 

Refer to Note 5 for additional commitments relating 

to the Treasury Housing Programs under TARP and 

Note 6 relating to Equity Investments, Net and 

FHA-Refinance Programs.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

NOTES TO THE FINANCIAL STATEMENTS 63

NOTE 10. STATEMENT OF NET COST

The Statement of Net Cost (SNC) presents the net 

cost of operations for the OFS under the strategic 

goal to promote domestic economic growth and 

stability while continuing reforms of the financial 

system. The OFS has determined that all initiatives 

and programs under the TARP fall within this 

strategic goal.

The OFS SNC reports the annual accumulated full 

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

indirect costs of the program services and output 

identifiable to TARP, in accordance with SFFAS No. 

4, Managerial Cost Accounting Concepts and 

Standards.

The OFS SNC for fiscal year 2017 includes $11

million of intragovernmental costs relating to 

interest expense on borrowings from the Fiscal 

Service and $5 million intragovernmental revenues 

relating to interest income on financing account 

balances. The OFS SNC for fiscal year 2016

includes $17 million of intragovernmental costs 

relating to interest expense on borrowings from the 

Fiscal Service and $1 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 equity investments and FHA-Refinance 

programs from TARP participants, and interest 

expense on borrowings from the Fiscal Service. The 

subsidy allowance account is used to present the 

equity investments at the estimated net present 

value of future cash flows. The OFS SNC includes 

$3 million and $7 million of subsidy allowance 

amortization for fiscal years 2017 and 2016, 

respectively.

NOTE 11. STATEMENT OF BUDGETARY RESOURCES

The Statement of Budgetary Resources (SBR) 

presents information about total budgetary 

resources available to the OFS and the status of 

those resources. For the fiscal year ended September 

30, 2017, the OFS’s total resources in budgetary 

accounts were $0.3 billion and resources in nonbudgetary financing accounts, including spending 

authority from collections of equity investment 

liquidations, dividends, interest and fees, were $0.1 

billion. For the fiscal year ended September 30, 

2016, the OFS’s total resources in budgetary 

accounts were $3.0 billion and resources in nonbudgetary financing accounts were $0.9 billion. 

Permanent Indefinite Appropriations

The OFS receives permanent indefinite 

appropriations annually, if necessary, to fund 

increases in the projected subsidy costs of equity 

investments and FHA-Refinance 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 EESA and that 

any such funds expended or obligated by the 

Secretary for actions authorized by EESA, including 

the payment of administrative expenses, shall be 

deemed appropriated at the time of such 

expenditure or obligation.

Borrowing Authority 

The OFS is authorized to borrow from the Fiscal 

Service to pay interest costs in excess of interest 

income and to fund downward reestimates transfers 

to the General Fund. For the fiscal year ended 

September 30, 2017, the OFS had no borrowing 

authority available or authorized. For the fiscal year 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

64 NOTES TO THE FINANCIAL STATEMENTS

ended September 30, 2016, the OFS had no 

borrowing authority available of the $72 million 

authorized. 

The OFS uses dividends and interest received as 

well as recoveries on direct loans and liquidation of 

equity investments to repay debt in the nonbudgetary direct loan and equity investment 

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, 2017 were 

$10.9 billion in budgetary accounts and no funds 

remained in non-budgetary financing accounts. 

Undelivered orders as of September 30, 2016 were 

$15.0 billion in budgetary accounts and no funds 

remained in non-budgetary 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 2019, with the “Actual” 

column completed for fiscal year 2017, 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 2018. It will be available from the 

Government Printing Office.

The 2018 President’s Budget, with the “Actual” 

column completed for the fiscal year ended 

September 30, 2016, was published in May 2017,

and reconciled to the SBR. The only differences 

between the two documents were due to:

• Rounding; and

• Expired funds that are not shown in the 

“Actual” column of the President’s Budget.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

NOTES TO THE FINANCIAL STATEMENTS 65

NOTE 12. RECONCILIATION OF NET COST OF OPERATIONS TO BUDGET

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 Net Cost of Operations to 

Budget for the fiscal years ended September 30, 

2017 and 2016 follows:

Dollars in Millions 2017 2016

Resources Used to Finance Activities:

Budgetary Resources Obligated

 Obligations Incurred / New Obligations and Upward Adjustments per SBR $ 222 $ 3,

 Actual Offsetting Collections, Net of Change in Uncollected Payments, and Recoverie  (4    

 Offsetting Receipts (91) (85

Net Obligations (365  

Other Non-Budgetary Resources - -

Total Resources Used to Finance Activities (365  

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

 Net Obligations in Direct Loan, Equity Investment and FHA-Refinance Program Financing Funds 3   

 Change in Resources Obligated for Goods, Services and Benefits Ordered but not yet Provided 4,1   

 Resources that Fund Prior Period Expenses and Reestimates 76 208

Total Resources Used to Finance Items Not Part of Net Cost of Operations 4,51 

Total Resources Used to Finance the Net Cost of Operations 4,1   

Components of Net Cost of Operations that Will Not Require or Generate Resources in the Current 

Period:

 Accrued Net Downward Reestimates at Year-End (16) (7

 Other 1 1

Total Components of Net Cost of Operations that Will Not Require or Generate Resources in the 

Current Period (15) (7

Net Cost of Operations $ 4,131  

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

66 REQUIRED SUPPLEMENTARY INFORMATION

REQUIRED SUPPLEMENTARY INFORMATION

TARP 

Administrative

Dollars in Millions

Budgetary 

Accounts

Non-Budgetary 

Credit Reform 

Financing Accounts

Budgetary 

Accounts

Non-Budgetary 

Credit Reform 

Financing 

Accounts

Budgetary 

Accounts

BUDGETARY RESOURCES

 Unobligated Balance Brought Forward, October 1 $ 174   59   1   59   

 Recoveries of Prior-Year Unpaid Obligations 61 - 41 - 2

 Actual Repayments of Debt, Prior-Year Balances - (3      

 Canceled Authority (71) - - - (7

 Other Changes in Unobligated Balances - - - - -

Unobligated Balance from Prior-Year Budget Authority, Net 16         

Appropriations 138 - 15 - 1

Borrowing Authority - - - - -

Spending Authority from Offsetting Collections - 121 - 121 -

TOTAL BUDGETARY RESOURCES (Note 11) $ 302   145   57   14  

STATUS OF BUDGETARY RESOURCES

New Obligations and Upward Adjustments (Total) $ 121 $ 101 $ 15 $ 101 $ 10

Unobligated Balance, End of Year

 Apportioned, Unexpired Accounts 19 2      

 Unapportioned, Unexpired Accounts 4  2      

 Unexpired Unobligated Balance, End of Year 61    

 Expired Unobligated Balance, End of Year 120 - - - 12

Unobligated Balance, End of Year (Total  18    

TOTAL BUDGETARY RESOURCES $ 302 $ 145   57   145  

CHANGE IN OBLIGATED BALANCES

Unpaid Obligations:

 Unpaid Obligations Brought Forward, October 1 $ 15,260   -   15,170   -  

 New Obligations and Upward Adjustments 121 101 15 101 106

 Gross Outlays (4,26   (1             

 Recoveries of Prior-Year Unpaid Obligations (61) - (4     

Unpaid Obligations, End of Year 11,05    10,9    

Uncollected Payments from Federal Sources:

 Uncollected Payments Brought Forward, October 1 $ - $ - $ - $ - $ 

 Change in Uncollected Payments - - - - -

Uncollected Payments from Federal Sources, End of Year - - - - 

OBLIGATED BALANCES

 (Net of Unpaid Obligations and Uncollected Payments Above

Obligated Balance, Net, Brought Forward, October 1   15,26        15,1      

Obligated Balance, Net, End of Year   11,058   -   10,99      

BUDGET AUTHORITY AND OUTLAYS, NE

 Budget authority, Gross $ 138   121   15   121   

 Actual Offsetting Collections - (43      

 Change in Uncollected Payments, Federal Sources - - - - 

 Recoveries of Prior-Year Paid Obligations - - - - -

BUDGET AUTHORITY, NET $ 138   (315    1    (3  

 Gross Outlays 4,26  10  4       

 Actual Offsetting Collections - (43      

 Net Outlays 4,26  (         

 Distributed Offsetting Receipts (91) - (91   

AGENCY OUTLAYS, NET $ 4,171   (3              

2017

Combined TARP Programs

Office of Financial Stability - Troubled Asset Relief Program

2E15)2E$ 3500,

CO-B)NE$ 34A4E-EN4 OF B

For the Year Ended September 30, 20

(Unaudited)
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

REQUIRED SUPPLEMENTARY INFORMATION 67

Dollars in Millions

Budgetary 

Accounts

Non-Budgetary 

Credit Reform 

Financing 

Accounts

Budgetary 

Accounts

Non-Budgetary 

Credit Reform 

Financing 

Accounts

Budgetary 

Accounts

BUDGETARY RESOURCES

 Unobligated Balance Brought Forward, October 1 $ 8,366   150   8,15    15   

 Recoveries of Prior-Year Unpaid Obligations 2,03    2,0   

 Borrowing Authority Withdrawn - - - - -

 Actual Repayments of Debt, Prior-Year Balances - (1    ( 

 Canceled Authority (80) - - - (8

 Other Changes in Unobligated Balances (8,159    (8,1   

Unobligated Balance from Prior-Year Budget Authority, Net 2,15  15  2,0   1   

Appropriations 825 - 673 - 15

Borrowing Authority - 72 - 72 -

Spending Authority from Offsetting Collections - 722 - 722 -

TOTAL BUDGETARY RESOURCES (Note 11) $ 2,983   9     2      

STATUS OF BUDGETARY RESOURCES

New Obligations and Upward Adjustments (Total) $ 2,809   885   2,67    88  

Unobligated Balance, End of Year

 Apportioned, Unexpired Accounts 19 9 - 9 1

 Unapportioned, Unexpired Accounts 1 50 1 50 

 Unexpired Unobligated Balance, End of Year 20 59 1 59 1

 Expired Unobligated Balance, End of Year 15        

Unobligated Balance, End of Year (Total  1          

TOTAL BUDGETARY RESOURCES $ 2,983   94    2,      

CHANGE IN OBLIGATED BALANCES

Unpaid Obligations:

 Unpaid Obligations Brought Forward, October 1 $ 19,582   1   19,45      

 New Obligations and Upward Adjustments 2,809 885 2,6   8  

 Gross Outlays (5,100  (88   (4        

 Recoveries of Prior-Year Unpaid Obligations (2,03       (2     

Unpaid Obligations, End of Year 15,26    15,1    

Uncollected Payments from Federal Sources:

 Uncollected Payments Brought Forward, October 1 $ - $ - $ - $ - $ 

 Change in Uncollected Payments - - - - -

Uncollected Payments from Federal Sources, End of Year - - - - 

OBLIGATED BALANCES

 (Net of Unpaid Obligations and Uncollected Payments Above

Obligated Balance, Net, Brought Forward, October 1   19,58        19,      

Obligated Balance, Net, End of Year   15,260   -   15,17      

BUDGET AUTHORITY AND OUTLAYS, NE

 Budget Authority, Gross $ 825 $ 794   673   79   

 Actual Offsetting Collections - (742    (7 

 Change in Uncollected Payments, Federal Sources - - - - 

 Recoveries of Prior-Year Paid Obligations - - - - -

BUDGET AUTHORITY, NET $ 825 $ 52 $ 673   52   1

 Gross Outlays $ 5,100 $ 885 $ 4,961   885  

 Actual Offsetting Collections - (742    (7 

 Net Outlays 5,100 1   4    

 Distributed Offsetting Receipts (855) - (855   

AGENCY OUTLAYS, NET $ 4,24                

2016

Combined TARP Programs TARP 

Administrative

Office of Financial Stability - Troubled Asset Relief Program

2E15)2E$ 3500,

CO-B)NE$ 34A4E-EN4 OF B

For the Year Ended September 30, 20

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

68 REQUIRED SUPPLEMENTARY INFORMATION
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

REQUIRED SUPPLEMENTARY INFORMATION 69

Part 3: Other Information (Unaudited)
70 REQUIRED SUPPLEMENTARY INFORMATION
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

OTHER INFORMATION 71

Section A – Payment Integrity

Risk Assessment

The central purpose of the Improper 

Payments Information Act of 2002 (IPIA, Pub. 

L. 107-300) is to enhance the accuracy and 

integrity of federal payments. To achieve this 

objective, IPIA provided an initial framework 

for federal agencies to identify the causes of 

and solutions for reducing improper 

payments.

On July 22, 2010, President Obama signed 

into law the Improper Payments Elimination 

and Recovery Act of 2010 (IPERA, Pub. L. 

111-204). IPERA amends IPIA, generally 

repeals the Recovery Auditing Act (31 USC 

§§3561-3567), and significantly increases 

agency payment recapture efforts by 

expanding the types of payments to be 

reviewed and lowering the dollar threshold of 

annual payments that requires agencies to 

conduct payment recapture audit programs. 

Agencies continue to be required to review 

their programs and activities periodically to 

identify those susceptible to significant 

improper payments. OMB Circular No. A-123, 

Management’s Responsibility for Enterprise 

Risk Management and Internal Control, 

Appendix C, “Requirements for Effective 

Estimation and Remediation of Improper 

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

October 20, 2014, defines “significant 

improper payments” as gross annual improper 

payments in a program exceeding both the 

threshold of 1.5 percent and $10 million, or 

exceeding $100 million regardless of the 

improper payment percentage. A-123, 

Appendix C, also requires agencies to review 

all programs with annual payments of $1 

million or more, if cost-effective.

OFS managers are held accountable for 

developing and strengthening financial 

management controls to detect and prevent 

improper payments, and thereby better 

safeguard taxpayer dollars.

OFS carried out its fiscal year 2017 IPERA 

review per Treasury-wide guidance and did 

not assess any programs or activities as 

susceptible to significant improper payments.

Recapture of Improper Payment 

Reporting

In accordance with IPIA, as amended, and 

OMB Circular No. A-123, Appendix C, OFS 

performs and reports annually on its payment 

recapture program for all programs and 

payment activities that expend $1 million or 

more, including contracts, benefits, and other 

payment types. During fiscal year 2017, OFS 

reviewed administrative and program 

payments totaling approximately $4.2 billion.

OFS does not have an improper payment 

recapture audit contingency contract or formal 

management improvement program in place. 

Instead, OFS performs both targeted postaward audits and improper payment 

recapture audits designed to identify 

erroneous payments, principally applying 

payment offsets for any identified erroneous 

payments. OFS has in place extensive annual 

audit and testing procedures to monitor 

administrative and program payments for 

errors. To date, these procedures have 

identified no significant erroneous payments 

or audit findings.

More specifically, with respect to 

administrative payments, OFS works

externally with the Bureau of the Fiscal 

Service – Administrative Resource Center 

and Internal Revenue Service – Office of 

Treasury Procurement Services (OTPS) to 

support payment recapture reporting. Fiscal 

Service processes OFS’s contract and 

administrative payments, including payments 

to OFS’s financial agents. OTPS solicits, 

negotiates, and awards contracts on behalf of 

OFS. Both organizations have extensive 
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72 OTHER INFORMATION

payment recapture audit and improper 

payments reporting capabilities.

OFS performs extensive payment recapture 

audit activities to identify erroneous incentive 

payments under the MHA program. OFS 

ensures that the Investor Reporting 2 (IR/2) 

system, the MHA system of record, is 

configured to calculate incentive payments in 

accordance with program guidelines based on 

data provided by servicers. The MHA program 

administrator performs a validation of all 

incentive payments which is then reconciled 

with OFS loan level payment and accounting 

files on a monthly basis. In addition, the MHA 

compliance agent performs post-award loan 

level reviews of MHA incentive payments to 

ensure validity in accordance with the MHA 

Handbook and Supplemental Directives 

issued by Treasury.

In conjunction with participating states’ 

housing finance administrations, OFS also 

performs targeted payment recapture audit 

activities to detect and prevent erroneous 

payments under the HHF program.

OFS reports annually improper payments 

identified through its recapture audit 

activities. Improper payments, recapture 

audit results, and disposition of recaptured 

funds are disclosed within the U.S. 

Department of the Treasury Agency Financial 

Report. In summary, OFS has a strong 

enterprise risk management and internal 

control environment in place to prevent, 

detect, and correct improper payments 

associated with its administrative and 

program payments.

IPERIA Do Not Pay Initiative

The Improper Payments Elimination and 

Recovery Improvement Act of 2012 (IPERIA, 

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

President on January 10, 2013, and also 

amends IPIA. It is important to note that 

Section 5 of IPERIA, regarding the “Do Not

Pay” Initiative, is treated separately from 

Circular No. A-136 reporting requirements.

Fiscal Service partnered with the Saint Louis 

and Kansas City Federal Reserve Banks to 

operate the “Do Not Pay Business Center” as 

part of a government-wide “Do Not Pay” 

solution. During fiscal year 2013, OFS 

implemented the “Do Not Pay” solution to 

monitor administrative disbursements to 

ensure, to the extent permitted by law, a 

thorough review of available databases with 

relevant information on eligibility occurs 

before the release of any federal funds.

To date, the Fiscal Service “Do Not Pay” 

Business Center has not identified any 

potential OFS improper payments. Additional 

“Do Not Pay” analysis is disclosed within the 

U.S. Department of the Treasury Agency 

Financial Report.
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OTHER INFORMATION 73

Section B – Fraud Reduction and Data Analytics Act

Overview of the Act

Under the Fraud Reduction and Data 

Analytics Act of 2015 (P.L. 114-186, 31 USC 

3321), each entity must disclose in its Agency 

Financial Report information pertaining to its 

fraud reduction efforts undertaken in fiscal 

year 2017 and the final quarter of fiscal year

2016.

These disclosures should include information 

on the entity’s progress in implementing:

• financial and administrative controls 

pursuant to the Act;

• the fraud risk principle in the 

Standards for Internal Control in the 

Federal Government; and

• OMB Circular A-123 with respect to 

leading practices for managing fraud 

risk.

These disclosures should also include 

information on the entity’s progress in:

• identifying risks and vulnerabilities to 

fraud (e.g., payroll, beneficiary 

payments, grants, large contracts, 

purchase and travel cards); and

• establishing strategies, procedures, 

and other steps to curb fraud.

Reporting

OFS has no confirmed fraud within its 

programs and activities.

OFS remains under significant scrutiny by 

various oversight bodies. OFS’s Senior 

Assessment Team (SAT) routinely discusses 

risks, including those related to fraud, during 

its meetings. OFS’s operational and 

accounting process are well-documented and 

relatively mature, most having been 

established over eight years ago. These 

processes consider fraud risk principles 

outlined within the Standards for Internal 

Control in the Federal Government. The 

remaining TARP investments are steadily 

being liquidated through planned, wellcoordinated transactional events. There are 

established practices for initiating, approving, 

processing and recording payments to third 

parties, including those related to the TARP 

programs and for the TARP administration. 

During wind-down, OFS remains vigilant in 

ensuring its controls are adequate to prevent 

or detect fraud.

OFS disclosures required under the Act are 

included within the U.S. Department of the 

Treasury Agency Financial Report.
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Section C – Reduce the Footprint

Overview of the Memorandum

Consistent with Section 3 of the OMB 

Memorandum M-12-12, Promoting Efficient 

Spending to Support Agency Operations, and 

OMB Management Procedures Memorandum 

2015-01, the “Reduce the Footprint” 

implementation policy, all CFO Act entities 

must set annual targets to reduce the total 

square footage of their domestic inventory of

office and warehouse space compared to the 

Fiscal Year 2015 baseline.

Reporting

OFS disclosures required under the 

Memorandum are included within the U.S. 

Department of the Treasury Agency Financial 

Report.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

OTHER INFORMATION 75

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.

 

Consolidated Appropriations Act, 2016: The 

law which included provisions that i.) the 

MHA program will terminate on December 31, 

2016, except with respect to certain loan 

modification applications made before such 

date and ii.) allowed Treasury to commit an 

additional $2.0 billion in TARP funds to the 

HHF program.

 

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. 

 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank Act): 

The law that limited Treasury’s authority to 

purchase or guarantee troubled assets to a 

maximum of $475.0 billion.

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.

Hardest Hit Fund (HHF): A TARP program

to help 18 hardest hit states, plus the District 

of Columbia, to develop locally-tailored 

programs to assist struggling homeowners in 

their communities.

 

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. 

 

Housing Finance Agencies (HFAs): Statecharted authorities established to help meet 

the affordable housing needs of the residents 

of their states. 
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76 OTHER INFORMATION

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. 

 

Non-Agency Residential Mortgage-Backed 

Securities: RMBS that are not guaranteed or 

issued by Freddie Mac, Fannie Mae, any other 

GSE, Ginnie Mae, or a U.S. federal 

government agency.

Preferred Stock: Equity ownership that

usually pays a fixed dividend and gives the 

holder a claim on corporate earnings superior 

to common stock owners. Preferred stock also 

has priority in the distribution of assets in the 

case of liquidation of a bankrupt company.

Public-Private Investment Fund (PPIF): An 

investment fund established to purchase 

Legacy Securities from financial institutions 

under PPIP.

 

Public-Private Investment Program (PPIP): A 

TARP program designed to support the 

secondary market in mortgage-backed 

securities. The program is designed to 

increase the flow of credit throughout the 

economy by partnering with private investors 

to purchase Legacy Securities from financial 

institutions.

Qualifying Financial Institution (QFI): 

Private and public U.S.-controlled banks, 

savings associations, bank holding companies, 

certain savings and loan holding companies, 

and mutual organizations.

Residential Mortgage-Backed Securities 

(RMBS): A financial instrument representing 

an interest in a group of residential real estate 

mortgages.

 

Small Business Administration (SBA) 7(a) 

Securities Purchase Program: A TARP 

program under which OFS purchased 

securities backed by the guaranteed portions 

of the SBA 7(a) loans.

 

Servicer: An administrative third party that 

collects mortgage payments, handles tax and 

insurance escrows, and may even bring 

foreclosure proceedings on past due mortgages 

for institutional loan owners or originators. 

The loan servicer also generates reports for 

borrowers and mortgage owners on the 

collections. 

 

Targeted Investment Program (TIP): A TARP 

program created to stabilize the financial 

system by making investments in institutions 

that are critical to the functioning of the 

financial system.

Term Asset-Backed Securities Loan Facility 

(TALF): A program under which the Federal 

Reserve Bank of New York made term nonrecourse loans to buyers of AAA-rated AssetBacked Securities in order to stimulate 

consumer and business lending. 

 

Troubled Asset Relief Program (TARP): The 

Troubled Asset Relief Program, which was 

established under EESA to stabilize the 

financial system and help prevent a systemic 

collapse.

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.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2017

OTHER INFORMATION 77

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

Website Information

Treasury.........................................................................................................................................................www.treasury.gov

Office of Financial Stability ............................................................................................................... www.financialstability.gov

Making Home Affordable Program........................................................................................www.makinghomeaffordable.gov

Additional References

TARP Programs..................................... www.treasury.gov/initiatives/financial-stability/TARP-Programs/Pages/default.aspx

TARP Reports..................................................... www.treasury.gov/initiatives/financial-stability/reports/Pages/default.aspx

TARP Tracker............................................ www.treasury.gov/initiatives/financial-stability/reports/Pages/TARP-Tracker.aspx

Financial Reports ..... www.treasury.gov/initiatives/financial-stability/reports/Pages/Annual-Agency-Financial-Reports.aspx
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

78 OTHER INFORMATION

www.financialstability.gov