When EESA was enacted on October 3, 2008, the U.S. financial system was facing a severe crisis that rippled throughout the global economy, moving from the U.S. housing market to the financial markets and affecting an array of financial assets and interbank lending. The crisis restricted access to credit and made the financing on which businesses and individuals depended increasingly difficult to obtain. Further tightening of credit exacerbated a global economic slowdown. During the crisis, Congress, the President, federal regulators, and others took a number of steps to facilitate financial intermediation by banks and the securities markets. While the financial system has generally stabilized and investor confidence has improved, some concerns persist that global demand will remain weak for a significant period of time, and that central bank efforts to combat inflation could disrupt financial markets. Under EESA, Treasury established a variety of TARP programs. American International Group, Inc. (AIG) Investment Program. Provided support to AIG to avoid disruptions to financial markets as the insurer’s financial condition deteriorated. Asset Guarantee Program. Provided federal government assurances for assets held by financial institutions that were viewed as critical to the functioning of the nation’s financial system. Bank of America and Citigroup were the only two participants in this program. AIFP. Aimed to prevent a significant disruption of the American automotive industry through government investments in domestic automakers Chrysler and GM and auto financing companies Chrysler Financial and Ally Financial (formerly known as General Motors Acceptance Corporation, or GMAC). Capital Assessment Program. Created to provide capital to institutions not able to raise it privately to meet Supervisory Capital Assessment Program—or “stress test”—requirements. This program was never used. CPP. The largest TARP program, designed to provide capital investments to financially viable financial institutions. Treasury received preferred shares and subordinated debentures, along with warrants. Consumer and Business Lending Initiative programs. The AIG Investment Program was formerly known as the Systemically Significant Failing Institutions Program. Community Development Capital Initiative (CDCI.) Provided capital to Community Development Financial Institutions (CDFI) by purchasing preferred stock and subordinated debentures. Small Business Administration (SBA) 7(a) Securities Purchase Program. Provided liquidity to secondary markets for government- guaranteed small business loans in SBA’s 7(a) loan program. Term Asset-backed Securities Loan Facility (TALF). Provided liquidity in securitization markets for various asset classes to improve access to credit for consumers and businesses. Public-Private Investment Program (PPIP). Created to address the challenge of “legacy assets” as part of Treasury’s efforts to repair balance sheets throughout the financial system. Treasury partnered with private funds that purchased residential and commercial mortgage-backed securities. Targeted Investment Program (TIP). Sought to foster market stability and strengthen the economy by making case-by-case investments in institutions that Treasury deemed critical to the functioning of the financial system. Bank of America and Citigroup were the only two institutions that participated in this program. Many of these programs are winding down or have ended. For example, as of September 30, 2014, Treasury had recovered all debt and equity investments made in PPIP. Furthermore, the AIG Assistance Program, the Asset Guarantee Program, the Capital Assessment Program, the SBA 7(a) Securities Purchase Program, and TIP are no longer active, and Treasury no longer holds assets related to these programs. Treasury still holds investments in CPP, CDCI, and AIFP, and the housing assistance programs remain active. The housing programs include: Making Home Affordable (MHA). MHA includes several housing programs, but the cornerstone is the Home Affordable Modification Program (HAMP), under which Treasury shares the cost of reducing monthly payments on first-lien mortgages with mortgage holders/investors and provides other financial incentives to servicers, borrowers, and mortgage holders/investors for loans modified under the program. There are several other programs that operate under MHA: Home Affordable Foreclosure Alternatives (HAFA) Program. The HAFA Program offers assistance to homeowners looking to relinquish their homes through a short sale or a deed-in-lieu of foreclosure. Treasury offers incentives to eligible homeowners, servicers, and investors under the program. Principal Reduction Alternative (PRA). PRA, a companion program to HAMP, requires servicers to evaluate the benefit of principal reduction for mortgages being assessed for a HAMP first-lien loan modification that have a loan-to-value ratio of 115 percent or more and that are not owned or guaranteed by Fannie Mae or Freddie Mac. Servicers are required to evaluate homeowners for PRA when evaluating them for a HAMP first-lien modification but are not required to actually reduce principal as part of the modification. Second Lien Modification Program (2MP). 2MP provides additional assistance to homeowners receiving a HAMP first-lien permanent modification who have an eligible second lien with participating servicers. When a borrower’s first lien is modified under HAMP, participating program servicers must offer to modify the borrower’s eligible second lien according to a defined protocol. This assistance can result in a modification or even full or partial extinguishment of the second lien. Treasury provides incentive payments to second lien mortgage holders in the form of a percentage of each dollar in principal reduction on the second lien. Treasury doubled the incentive payments offered to second lien mortgage holders for 2MP permanent modifications that included principal reduction and had an effective date on or after June 1, 2012. Government-insured or guaranteed loans (Federal Housing Administration (FHA-HAMP) and Rural Development (RD- HAMP)). FHA and the Department of Agriculture’s Rural Housing Service (RHS) have implemented modification programs similar to HAMP Tier 1 for FHA-insured and RHS-guaranteed first-lien mortgage loans. RD-HAMP provides borrowers with a monthly mortgage payment equal to 31 percent of the homeowners’ monthly gross income and FHA-HAMP provides for payment reduction based on a formula that considers gross income options (31 percent and 25 percent) and current payment (80 percent). Both programs require borrowers to complete a trial payment plan before permanent modification. If a modified FHA-insured or RHS- guaranteed mortgage loan meets Treasury’s eligibility criteria, the borrower and servicer can receive TARP-funded incentive payments from Treasury. Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (Hardest Hit Fund). The Hardest Hit Fund seeks to help homeowners in the states hit hardest by unemployment and house price declines by funding innovative measures developed by state housing finance agencies and approved by Treasury. By September 2010, Treasury had completed the distribution of $7.6 billion in funds across 18 states and the District of Columbia.for funding either because their unemployment rates were at or above the national average or they had experienced housing price declines of 20 percent or more that left some borrowers owing more on their mortgages than the value of their homes. Although the type of assistance provided varies by state, all states use some portion of their funds to help unemployed homeowners make mortgage payments. Some states have programs that reduce principal to help make mortgage payments more affordable, reduce or eliminate borrowers’ second liens, and provide transition assistance to borrowers leaving their homes. Department of Housing and Urban Development’s (HUD) FHA Short Refinance program (FHA Short Refinance). FHA Short Refinance enables homeowners whose mortgages exceed the value of their homes to refinance into more affordable mortgages. Treasury continues to make progress in winding down the TARP nonhousing programs. According to Treasury, its decision to exit a program depends on various circumstances, including market conditions and other factors outside the government’s control. Treasury estimates that some nonhousing programs have produced, or will produce, a lifetime income while others have, or are expected to have, a lifetime cost. For example, repayments and income from the federal government’s investments in participating CPP institutions have exceeded the original amounts. Further, Treasury’s estimates of the lifetime costs of CDCI have been falling significantly as participants exit the program. However, under AIFP Treasury sold its stock in GM at a loss, although it will make a profit on the sale of its investments in Ally Financial. Treasury expects lifetime income from two other programs— TALF and PPIP. As of September 30, 2014, Treasury had completed the wind down of four of nine TARP nonhousing programs that were once active. Treasury has stated that when deciding to sell assets and exit TARP programs, it strives to: protect taxpayer investments and maximize overall investment returns within competing constraints, and promote the stability of financial markets and the economy by preventing disruptions to the financial system; bolster markets’ confidence in order to encourage private capital dispose of investments as soon as practicable. We and others have noted that these goals can at times conflict.example, we previously reported that deciding to unwind some of its assistance to GM by participating in an initial public offering (IPO) presented Treasury with a conflict between maximizing taxpayer returns and exiting as soon as practicable. Holding its shares longer could have meant realizing greater gains for the taxpayer but only if the stock appreciated in value. By participating in GM’s November 2010 IPO, Treasury tried to fulfill both goals, selling almost half of its shares at an early opportunity. Treasury officials stated that although they strove to balance these competing goals, they had no strict formula for doing so. Rather, they ultimately relied on the best available information in deciding when to start exiting this program. Moreover, in some cases Treasury’s ability to exercise control over the timing of its exit from TARP programs is limited. For example, Treasury has limited control over its exit from CDCI because the program’s exit depends on when each financial institution decides to repay Treasury’s investments. For As shown in table 1, Treasury estimates that several of the TARP nonhousing programs will provide or have provided income over their lifetimes, while others will incur a lifetime cost. Though direct costs for TARP—including potential lifetime income—can be estimated and quantified, certain indirect costs connected to the government’s assistance are less easily measured. For example, as we have previously concluded, when the government provides assistance to the private sector, it may increase moral hazard that would then need to be mitigated. That is, in the face of government assistance, private firms are motivated to take risks they might not take in the absence of such assistance, or creditors may not price into their extensions of credit the full risk assumed by the firm, believing that the government would provide assistance should the firm become distressed. Government interventions can also have consequences for the banking industry as a whole, including institutions that do not receive bailout funds. For instance, investors may perceive the debt associated with institutions that received government assistance as being less risky because of the potential for future government bailouts. This perception could lead them to choose to invest in such assisted institutions instead of those that did not receive assistance. Treasury continues to wind down CPP, the largest TARP investment program, which was designed to provide capital investments to viable financial institutions, and thus far, repayments and income have exceeded the total amount of original outlays. As we have reported, Treasury disbursed $204.9 billion to 707 financial institutions nationwide from October 2008 through December 2009. As of September 30, 2014, Treasury had received $226.4 billion in repayments and income from its CPP investments, exceeding the amount originally disbursed by $21.5 billion (see fig. 1). The repayments and income amounts include $199.4 billion in repayments and sales of original CPP investments, as well as $12.1 billion in dividends and interest, and $14.9 billion in proceeds in excess of costs, which includes $8.0 billion from the sale of warrants. After accounting for write-offs and realized losses from sales totaling $4.9 billion, CPP had $625 million in outstanding investments as of September 30, 2014. Treasury estimated a lifetime income of $16.1 billion for CPP as of September 30, 2014. As of September 30, 2014, a total of 664 of the 707 institutions (94 percent) that originally participated in CPP had exited the program. Of these, 253 had repurchased their preferred shares or subordinated debentures in full (see fig. 2). Another 165 institutions refinanced their shares through other federal programs: 28 through CDCI and 137 through another Treasury fund—separate from TARP—the Small Business Lending Fund (SBLF).investments sold through auction or other sales, and 30 institutions went into bankruptcy or receivership. The remaining 4 merged with another institution. Treasury created the CDCI program to help mitigate the adverse impacts of the financial crisis on communities underserved by traditional banks by providing capital to CDFIs—banks and credit unions—that provide financial services to low- and moderate-income, minority, and other underserved communities. CDCI, which is structured much like CPP, provides capital to financial institutions by purchasing preferred equity and subordinated debt from them.original 84 CDCI institutions remained in the program. Of the 16 institutions that had exited the program, 15 had done so through repayment and 1 had done so as a result of its subsidiary bank’s failure. Three of the 68 remaining institutions had begun to repay the principal on investments they had received, while the other remaining institutions had paid only dividends and interest. As of September 30, 2014, 68 of the As of September 30, 2014, the outstanding investment balance for CDCI was $465 million of an original investment of $570 million. As of the same date, Treasury had received approximately $98 million in principal repayments from CDCI participants, and had written off approximately $7 million. CDCI participants have also paid approximately $43 million in dividends and interest. Treasury has lowered its estimates of the program’s lifetime cost over the last 3 years as market conditions have improved and institutions have begun to repay their investments. As of November 2010, Treasury estimated the program’s lifetime cost at about $290 million. As of September 30, 2014, Treasury estimated the program’s lifetime cost at $110 million. As we have reported, Treasury continues to monitor the performance of CDCI participants because their financial strength will affect their ability to repay Treasury. Generally, the number of CDCI institutions with missed quarterly dividend or interest payments has been low, representing, on average, about 4 percent of all remaining institutions over the life of the program. The percentage of remaining institutions with missed payments has ranged from 0 to about 7 percent (0 to 6 institutions). Since November 2010 (the first quarter that dividend and interest payments were due), nine institutions (seven banks and two credit unions) have missed at least one quarterly payment. Of those institutions, three banks have missed at least eight payments, the threshold at which Treasury has the right to elect directors to their boards. However, as of September 30, 2014, Treasury had not appointed directors to the board of any CDCI banks, but it had sent an observer to one bank and asked to send an observer to a second. In an effort to preserve their capital and promote safety and soundness, federal and state regulators generally do not allow institutions on these lists to make dividend payments. As of September 30, 2014, Treasury was continuing to assess exit alternatives for the CDCI program. Treasury had not yet determined a final exit strategy and associated timing and has limited control over participants’ decision to exit. As we previously reported, CDCI participants said that the 2 percent dividend rate they would pay on investments until 2018 was lower than the cost of private capital and that access to capital would play a major factor in their decision to repay their CDCI investments. The dividend rate will increase from 2 percent to 9 percent in 2018 and may be a key factor for many CDCI participants in the decision to stay in or exit the program. Treasury disbursed $79.7 billion through AIFP from December 2008 through June 2009 to support two automakers, Chrysler and GM, and their automotive finance companies, Chrysler Financial and Ally Financial (then known as GMAC). As of September 30, 2014, the government had recovered $68.9 billion (86.3 percent) of the funds disbursed through the program, and expects AIFP to have a lifetime cost of $12.2 billion. Chrysler. In May 2011, Chrysler repaid its outstanding TARP loans, 6 years ahead of schedule. Chrysler returned more than $11.1 billion of $12.4 billion committed to Chrysler through principal repayments, interest, and cancelled commitments. Treasury has fully exited its investment in Chrysler Group under TARP. GM. On December 9, 2013, Treasury fully exited its investment in GM. Treasury completed its fourth and final pre-arranged trading plan for the sale of its remaining 31.1 million shares. Treasury recovered a total of $39.7 billion from its original investment of $51.0 billion in GM. Chrysler Financial. In July 2009, Chrysler Financial repaid its $1.5 billion in TARP loans plus around $7 million in interest. Chrysler Financial has since ceased operations. Also through AIFP, Treasury provided $17.2 billion of assistance to Ally Financial, a large financial holding company, whose primary business is auto financing. To provide this assistance, Treasury purchased senior equity, mandatory convertible preferred shares, and trust preferred securities, some of which Treasury ultimately converted into common shares. By December 2010, Treasury held common shares totaling 74 percent of Ally financial as well as $5.9 billion in mandatory convertible preferred shares. Treasury retained this level of ownership through the third quarter of 2013. Then, in late 2013, three key regulatory and legal developments helped Treasury accelerate the wind down of its investments in Ally Financial (see text box). As a result, in November 2013, Ally Financial made cash payments totaling $5.9 billion to repurchase all remaining mandatory convertible preferred shares outstanding and terminate an existing share adjustment provision. Additionally, Ally Financial issued $1.3 billion of common equity to third- party investors, reducing Treasury’s ownership share from 74 to 63 percent. The Board of Governors of the Federal Reserve System (Federal Reserve) did not object to Ally Financial’s resubmitted capital plan, allowing Ally Financial to complete the private placement of common shares valued at $1.3 billion, which it had announced in August 2013. The private placement, intended in part to help finance the repurchase of the $5.9 billion remaining Treasury-owned mandatory convertible preferred shares, was completed in November 2013, and the Treasury shares were repurchased. In December 2013, the bankruptcy of Ally Financial’s subsidiary ResCap was substantially resolved. The final bankruptcy agreement included a settlement that the bankruptcy court judge had approved in June 2013. It released Ally Financial from any and all legal claims by ResCap and, with some exceptions, all other third parties, in exchange for $2.1 billion in cash from Ally Financial and its insurers. Also in December 2013, Ally Financial obtained Federal Reserve approval to convert from a bank holding company to a financial holding company, enabling it to continue insurance underwriting and other Because of the positive results of the March 2014 stress test and Comprehensive Capital Analysis and Review (CCAR) conducted by the Board of Governors of the Federal Reserve System (Federal Reserve) on Ally Financial, Treasury decided to further reduce its ownership share.The day after the release of the CCAR results in March 2014, Treasury announced that it would sell Ally Financial common stock in an initial public offering (IPO). In April 2014, Treasury completed the IPO of 95 million shares at $25 per share. The $2.4 billion sale reduced Treasury’s ownership share to approximately 17 percent. Following the IPO, Ally Financial became a publicly held company. In May 2014, Treasury received $181 million from the sale of additional shares after underwriters exercised the option to purchase an additional 7 million shares from Treasury at the IPO price. This additional sale reduced Treasury’s ownership share to approximately 16 percent. In September 2014, Treasury announced the completion of its first trading strategy for Ally common stock. With this plan, Treasury sold 8.89 million shares and recovered approximately $218.7 million, further reducing its ownership share to 13.8 percent (around 64 million shares of common stock). On September 12, 2014, Treasury announced that it would continue to wind down its investment in Ally by selling additional shares of common stock through its second pre-defined written trading plan, with sales beginning that day. As of September 30, 2014, Treasury had recovered approximately $18.1 billion in sales proceeds and interest and dividend payments on its total $17.2 billion investment in Ally Financial. On December 19, 2014, Treasury announced an agreement to sell all of its remaining common shares in Ally Financial. Treasury reported that it recovered $19.6 billion from Ally, which is approximately $2.4 billion more than its initial investment of $17.2 billion. This results in the exit of Treasury’s last outstanding investments in AIFP. The Federal Reserve established TALF in an effort to reopen the securitization markets and improve access to credit for consumers and Treasury committed funds to the TALF special-purpose businesses.vehicle, TALF LLC, established by the Federal Reserve Bank of New York (FRBNY) to provide credit protection to FRBNY for TALF loans should borrowers fail to repay and surrender the asset-backed securities (ABS) or commercial mortgage-backed securities (CMBS) pledged as collateral. Treasury disbursed $100 million for start-up costs to TALF LLC (see fig. 5). TALF LLC repaid Treasury’s initial $100 million disbursement in 2013, and as of September 30, 2014, had accumulated $759 million in income from the TALF loans, of which $632 million was paid to Treasury as contingent interest. On November 6, 2014, the net portfolio holdings of TALF LLC were reduced to zero, and TALF LLC together with the other TALF agreements were terminated, effectively closing the TALF program. To create PPIP, Treasury partnered with private funds that purchased troubled mortgage-related assets (“legacy assets”) from financial institutions in order to help repair balance sheets throughout the financial system. The program’s Public-Private Investment Funds (PPIF) each had a 3-year investment period that began at each fund’s inception date, and at the completion of the investment period each fund had 5 years to completely divest. Treasury provided these PPIFs with equity and loan commitments of $7.4 billion and $14.7 billion, respectively, but disbursed a total of $18.6 billion (see fig. 6). On September 30, 2014, Treasury received its final $1.8 million distribution from the PPIP. With this distribution all nine PPIFs have completely divested their assets and Treasury recovered a total of $22.5 billion. According to Treasury officials, as of December 29, 2014, all nine PPIFs had formally provided Treasury official termination notices and the PPIP program had been effectively wound down. As of September 30, 2014, Treasury had disbursed $13.7 billion (36 percent) of the $38.5 billion in TARP funds that had been allocated to support housing programs. The number of new HAMP permanent modifications added on a quarterly basis rose slightly in early 2013 but has declined in 2014, falling to 29,000 in the third quarter, the lowest level since the program’s inception. Treasury has taken steps to help more borrowers, including by extending the deadline for HAMP applications for a third time. Treasury’s Office of Homeownership Preservation within OFS is tasked with finding ways to help prevent avoidable foreclosures and preserve homeownership. Treasury established three initiatives under TARP to address these issues: MHA, the Hardest Hit Fund, and FHA Short Refinance. As of September 30, 2014, Treasury had disbursed approximately $13.7 billion (36 percent) of the $38.5 billion in TARP housing funds, though the amount of disbursements varied across the three programs (see fig. 7). For example, of the $29.8 billion dedicated to MHA, the largest TARP-funded housing program, Treasury had disbursed $9.3 billion (31 percent) as of September 2014. In the case of the Hardest Hit Fund, $7.6 billion (59 percent) had been disbursed as of that date. In contrast, only $0.01 billion (0.13 percent) had been disbursed for the FHA Short Refinance program. As we have reported, Treasury officials said that they anticipated using all of the remaining MHA funds, and in April 2014, the Congressional Budget Office (CBO) increased its estimate of likely disbursements under TARP-funded housing programs because of extensions of the MHA program. But CBO has continued to project an $11 billion dollar surplus for the TARP-funded housing programs because it anticipates that fewer households will participate in the housing programs. Treasury will continue to disburse TARP funds under the housing programs for several more years. Specifically, homeowners have until at least December 31, 2016, to apply for assistance under MHA programs, and Treasury will continue to pay incentives for up to 6 years after the last permanent modification begins. Treasury’s obligation under FHA Short Refinance will continue until September 2020. Unlike TARP expenditures under some other programs, such as those that provided capital infusions to banks, expenditures under these programs are generally direct outlays of funds with no provision for repayment. As of September 30, 2014, the estimated lifetime cost for the housing programs was $37.4 billion. The centerpiece of Treasury’s MHA program is HAMP, which seeks to help eligible borrowers facing financial distress avoid foreclosure by reducing their monthly first-lien mortgage payments to more affordable levels. Treasury announced HAMP (which originally included what is now called HAMP Tier 1) on February 18, 2009. At that time, Treasury projected that the program would help up to 3 million to 4 million borrowers who were at risk of default and foreclosure. However, we noted then that reaching the projected number of borrowers might be difficult for several reasons. In an effort to reach more borrowers, Treasury expanded HAMP to include HAMP Tier 2, which servicers began implementing in June 2012. Treasury also provides incentive payments to services, investors, and borrowers for modifications under HAMP Tier 1 and HAMP Tier 2. Since the HAMP first lien modification program began in 2009 through September 2014, there have been 2,246,680 trial modifications and 1,416,705 permanent modifications. These modifications resulted in a median monthly mortgage payment reduction of $490 per month. As shown in figure 8, HAMP participation, as measured by trial and permanent modifications started each quarter, peaked in early 2010, generally declined in 2011, and then held relatively steady through the middle of 2013. However, beginning with the third quarter of 2013, the number of new HAMP trial modifications began to decline, falling to 27,000 in the second quarter of 2014, then increasing slightly, to 33,000 in the third quarter of 2014—the most recent for which data are available. During the same period, the number of new HAMP permanent modifications declined steadily, from 46,000 in the third quarter of 2013 to 29,000 in the third quarter of 2014. As we have reported, according to Treasury, the decline in HAMP modifications is a reflection of the shrinking pool of HAMP-eligible mortgages, as evidenced in the declining number of 60-day-plus delinquencies reported by the industry. Treasury has taken steps to increase HAMP participation, including extending the program application deadline and making other program changes. First, in June 2014, Treasury announced the third extension of the program to at least December 31, 2016. With this extension, Treasury has increased the period for eligible borrowers—including the unemployed and those facing an increase in interest rates—to apply for assistance by 4 years from the initial program deadline of December 31, 2012. However, as we have reported earlier, the pool of mortgages eligible for HAMP programs is declining. Second, in September 2014 Treasury, in conjunction with HUD and the Ad Council, launched a new series of public service advertisements (PSA) to raise awareness of the free government resources available through MHA to assist struggling homeowners in avoiding foreclosure. The campaign includes television, print, radio, outdoor (billboards and other signage), and digital PSAs. According to Treasury, since the campaign was initially launched in 2010, media outlets have donated about $137 million in airtime and physical and digital space, and more than 16,000 outdoor or transit ads have been placed nationwide. Treasury officials said that calls to the Homeowner’s HOPETM Hotline increased by 20 percent during the first week of the campaign. Treasury attributes the increase to the September 2014 campaign effort. Lastly, in late 2014, Treasury released two Supplemental Directives. The first, Supplemental Directive 14-04, was issued in October 2014 and stated that the interest rate on a HAMP Tier 2 modification would be lowered effective January 1, 2015, to the weekly Freddie Mac Primary Mortgage Market Survey Rate minus 50 basis points (down from zero basis points). Treasury is lowering the rate in an effort to increase the population that is potentially eligible for HAMP and provide greater payment reduction. In particular, Treasury believes the lowered rate will allow more HAMP Tier 1 borrowers, who might struggle with an interest rate step-up under Tier 1, to qualify for a HAMP Tier 2 modification. On November 30, 2014, Treasury issued Supplemental Directive 14-05, which made several changes to HAMP that, among other things, will extend the pay-for-performance borrower incentives by an additional year, to a sixth year for the modification, and increases the amount of the incentive payment for that additional year to $5,000, up from $1,000 for years 1 to 5. While previously Tier 2 modifications were not eligible for pay-for-performance incentive payments, the changes in Supplemental Directive 14-05 apply to both Tier 1 and Tier 2 modifications, as well as to FHA-HAMP and RD-HAMP modifications. Among the other programs designed to help borrowers, HAFA has assisted the largest number of borrowers—approximately 169,000— through September 2014. Under HAFA, 162,498 short sales and 6,975 deeds-in-lieu had taken place, as of September 2014 PRA had provided an estimated $14.8 billion in principal reduction to borrowers, through 163,951 permanent loan modifications, with $68,861 in median principal reduction. Through 2MP, servicers reported starting about 141,697 second-lien modifications, of which 38,480 fully extinguished the second lien as of September 2014. Nearly 67,708 trial modifications were started that received Treasury FHA-HAMP incentives as of June 2014, and the median monthly payment reduction for active permanent modifications was $232. However, as of June 2014, only 187 modifications had been made that qualified for Rural Development (RD)-HAMP incentives. For the RD-HAMP loans, the median monthly payment reduction for active permanent modifications was $260. As discussed earlier, Treasury extended HAMP and all MHA programs until at least December 31, 2016. However, Treasury officials told us that they might decide at a future date to wind down some programs under MHA at an earlier date or to extend MHA beyond 2016. They added that their decision would be based on market conditions, program volume, and other factors. As of September 30, 2014, six states and the District of Columbia had closed their Hardest Hit Fund application process in anticipation of full commitment of program funds. As of that date, participating states and the District of Columbia had committed a total of $3.4 billion of the $7.6 billion dedicated to the program, and assisted a total of 207,511 homeowners. However, as we have reported, progress in disbursing funds and meeting state-level targets for household participation varied across states. As we also reported, state officials told us that, with Treasury’s help, they had confronted challenges related to staffing and infrastructure, servicer participation, borrower outreach, and program implementation In terms of an exit strategy and end date for the Hardest Hit Fund, state housing finance agencies must commit funds by December 31, 2017, but can continue to spend committed funds after that date. According to Treasury officials, currently there are no plans to extend the deadline for committing Hardest Hit Fund monies beyond 2017. However, Treasury will continue to evaluate that deadline over time, taking into account changing market conditions in Hardest Hit Fund areas, program performance, and other factors. Finally, FHA refinanced 4,963 loans between September 2010 and September 2014 through the FHA Short Refinance program. As of September 30, 2014, Treasury would pay a portion of claims in the event Through September 2014, of a default for 3,015 of those loans.Treasury had paid one claim of approximately $48,000 and spent approximately $10 million in administrative costs. The scheduled end date for the FHA Short Refinance program was December 31, 2014. However, on November 14, 2014, FHA extended the program for an additional 2 years, with all loans required to close on or before December 31, 2016. Treasury officials are evaluating whether the extension through 2016 will require an extension of Treasury’s line of credit. We provided a draft of this report to Treasury for review and comment. In its written comments, reproduced in appendix II, Treasury generally concurred with our findings. Treasury stated that it will continue its efforts to wind down the remaining investment programs while protecting taxpayers’ interests and maximizing returns and continue to implement TARP-funded housing programs, primarily through mortgage modifications and other assistance programs. Treasury also provided technical comments that we have incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees. This report will be available at no charge on our website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-8678 or clowersa@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. The objectives in this report were to examine the condition and status of (1) nonhousing-related Troubled Asset Relief Programs (TARP) and (2) TARP-funded housing programs. To assess the condition and status of all the nonhousing-related programs initiated under TARP, we collected and analyzed data about program utilization and assets held, as applicable, focusing primarily on financial information that we had audited in the Office of Financial Stability’s (OFS) financial statements, as of September 30, 2014. In some instances we analyzed more recent, unaudited financial information. The financial information includes the types of assets held in the program, obligations that represent the highest amount obligated for a program (to provide historical information on total obligations), disbursements, and income. We also used OFS cost estimates for TARP that we audited as part of the financial statement audit. As part of the financial statement audit, we tested OFS’s internal controls over financial reporting. The financial information used in this report is sufficiently reliable to assess the condition and status of TARP programs based on the results of our audits of fiscal years 2009 through 2014 financial statements for TARP. Further, we reviewed the Department of the Treasury’s (Treasury) documentation such as press releases and reports on TARP programs and costs. Also, we interviewed OFS program officials and obtained information from them to determine the current status of each TARP program and to update what is known about exit considerations for TARP programs. In reporting on these programs and their exit considerations, we leveraged our previous TARP reports, as appropriate. In addition, we did the following: For the Capital Purchase Program, we used OFS’s reports to describe the status of the program, including which participants had begun repaying Treasury investments, the number of institutions that had exited the program, and the amount of dividends paid. In addition, we reviewed Treasury’s press releases on the program and interviewed Treasury officials. For the Community Development Capital Initiative, we interviewed program officials to determine what exit concerns Treasury has for the program. To update the status of the Automotive Industry Financing Program and Treasury’s plans for managing its investment in the companies, we reviewed information on Treasury’s plans for overseeing its financial interests in Ally Financial, including Treasury reports. We also interviewed officials from Treasury. For the Term Asset-Backed Securities Loan Facility, we interviewed OFS officials about their role in the program as it continues to unwind. To update the status of the Public-Private Investment Program, we analyzed program quarterly reports, term sheets, and other documentation related to the public-private investment funds. We also interviewed OFS staff responsible for the program to determine the status of the program while it remains in active investment status. To assess the status of TARP-funded housing programs, we reviewed Treasury reports, guidance, and documentation and interviewed Treasury officials, in addition to leveraging our recent work.determine the status of Treasury’s TARP-funded housing programs, we obtained and reviewed Treasury’s published reports on the programs, as well as guidelines and related updates issued by Treasury for each of the programs. In addition, we obtained information from and interviewed Treasury officials about the status of the TARP-funded housing programs. We conducted this performance audit from September 2014 to January 2015 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. A. Nicole Clowers, (202) 512-8678 or clowersa@gao.gov. In addition to the contacts named above, Marcia Carlsen, Lynda E. Downing, Harry Medina, and Karen Tremba (lead assistant directors); Kristeen McLain (Analyst-in-Charge), Bethany M. Benitez, Emily R. Chalmers, William R. Chatlos, Rachel DeMarcus, Alex Fedell, John A. Karikari, Dragan Matic, Marc Molino, and Jena Y. Sinkfield have made significant contributions to this report. Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) Fiscal Years 2014 and 2013 Financial Statements. GAO-15-132R. Washington, D.C.: November 7, 2014. Troubled Asset Relief Program: Treasury Could Better Analyze Data to Improve Oversight of Servicers’ Practices. GAO-15-5. Washington, D.C.: October 6, 2014. Troubled Asset Relief Program: Government’s Exposure to Ally Financial Lessens as Treasury’s Ownership Share Declines. GAO-14-698. Washington, D.C.: August 5, 2014. Community Development Capital Initiative: Status of the Program and Financial Health of Remaining Participants. GAO-14-579. Washington, D.C.: June 6, 2014. Troubled Asset Relief Program: Status of the Wind Down of the Capital Purchase Program. GAO-14-388. Washington, D.C.: April 7, 2014. Troubled Asset Relief Program: More Efforts Needed on Fair Lending Controls and Access for Non-English Speakers in Housing Programs. GAO-14-117. Washington, D.C.: February 6, 2014. Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) Fiscal Years 2013 and 2012 Financial Statements. GAO-14-172R. Washington, D.C.: December 12, 2013. Troubled Asset Relief Program: Status of Treasury’s Investments in General Motors and Ally Financial. GAO-14-6. Washington, D.C.: October 29, 2013. Troubled Asset Relief Program: GAO’s Oversight of the Troubled Asset Relief Program Activities. GAO-13-840R. Washington, D.C.: September 6, 2013. Troubled Asset Relief Program: Treasury’s Use of Auctions to Exit the Capital Purchase Program. GAO-13-630. Washington, D.C.: July 8, 2013. Capital Purchase Program: Status of the Program and Financial Health of Remaining Participants. GAO-13-458. Washington, D.C.: May 7, 2013. Troubled Asset Relief Program: Status of GAO Recommendations to Treasury. GAO-13-324R. Washington, D.C.: March 8, 2013. Troubled Asset Relief Program: Treasury Sees Some Returns as It Exits Programs and Continues to Fund Mortgage Programs. GAO-13-192. Washington, D.C.: January 7, 2012. Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) Fiscal Years 2012 and 2011 Financial Statements. GAO-13-126R. Washington, D.C.: November 9, 2012. Treasury Continues to Implement Its Oversight System for Addressing TARP Conflicts of Interest. GAO-12-984R. Washington, D.C.: September 18, 2012. Troubled Asset Relief Program: Further Actions Needed to Enhance Assessments and Transparency of Housing Programs. GAO-12-783. Washington, D.C.: July 19, 2012. Troubled Asset Relief Program: Government’s Exposure to AIG Lessens as Equity Investments Are Sold. GAO-12-574. Washington, D.C.: May 7, 2012. Capital Purchase Program: Revenues Have Exceeded Investments, but Concerns about Outstanding Investments Remain. GAO-12-301. Washington, D.C.: March 8, 2012. Management Report: Improvements Are Needed in Internal Control over Financial Reporting for the Troubled Asset Relief Program. GAO-12-415R. Washington, D.C.: February 13, 2012. Troubled Asset Relief Program: As Treasury Continues to Exit Programs, Opportunities to Enhance Communication on Costs Exist. GAO-12-229. Washington, D.C.: January 9, 2012. Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) Fiscal Years 2011 and 2010 Financial Statements. GAO-12-169. Washington, D.C.: November 10, 2011. Troubled Asset Relief Program: Status of GAO Recommendations to Treasury. GAO-11-906R. Washington, D.C.: September 16, 2011. Troubled Asset Relief Program: The Government’s Exposure to AIG Following the Company’s Recapitalization. GAO-11-716. Washington, D.C.: July 28, 2011. Troubled Asset Relief Program: Results of Housing Counselors Survey on Borrowers’ Experiences with the Home Affordable Modification Program. GAO-11-367R. Washington, D.C.: May 26, 2011. Troubled Asset Relief Program: Survey of Housing Counselors about the Home Affordable Modification Program, an E-supplement to GAO-11-367R. GAO-11-368SP. Washington, D.C.: May 26, 2011. TARP: Treasury’s Exit from GM and Chrysler Highlights Competing Goals, and Results of Support to Auto Communities Are Unclear. GAO-11-471. Washington, D.C.: May 10, 2011. Management Report: Improvements Are Needed in Internal Control Over Financial Reporting for the Troubled Asset Relief Program. GAO-11-434R. Washington, D.C.: April 18, 2011. Troubled Asset Relief Program: Status of Programs and Implementation of GAO Recommendations. GAO-11-476T. Washington, D.C.: March 17, 2011. Troubled Asset Relief Program: Treasury Continues to Face Implementation Challenges and Data Weaknesses in Its Making Home Affordable Program. GAO-11-288. Washington, D.C.: March 17, 2011. Troubled Asset Relief Program: Actions Needed by Treasury to Address Challenges in Implementing Making Home Affordable Programs. GAO-11-338T. Washington, D.C.: March 2, 2011. Troubled Asset Relief Program: Third Quarter 2010 Update of Government Assistance Provided to AIG and Description of Recent Execution of Recapitalization Plan. GAO-11-46. Washington, D.C.: January 20, 2011. Troubled Asset Relief Program: Status of Programs and Implementation of GAO Recommendations. GAO-11-74. Washington, D.C.: January 12, 2011. Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) Fiscal Years 2010 and 2009 Financial Statements. GAO-11-174. Washington, D.C.: November 15, 2010. Troubled Asset Relief Program: Opportunities Exist to Apply Lessons Learned from the Capital Purchase Program to Similarly Designed Programs and to Improve the Repayment Process. GAO-11-47. Washington, D.C.: October 4, 2010. Troubled Asset Relief Program: Bank Stress Test Offers Lessons as Regulators Take Further Actions to Strengthen Supervisory Oversight. GAO-10-861. Washington, D.C.: September 29, 2010. Financial Assistance: Ongoing Challenges and Guiding Principles Related to Government Assistance for Private Sector Companies. GAO-10-719. Washington, D.C.: August 3, 2010. Troubled Asset Relief Program: Continued Attention Needed to Ensure the Transparency and Accountability of Ongoing Programs. GAO-10-933T. Washington, D.C.: July 21, 2010. Management Report: Improvements are Needed in Internal Control Over Financial Reporting for the Troubled Asset Relief Program. GAO-10-743R. Washington, D.C.: June 30, 2010. Troubled Asset Relief Program: Treasury’s Framework for Deciding to Extend TARP Was Sufficient, but Could be Strengthened for Future Decisions. GAO-10-531. Washington, D.C.: June 30, 2010. Troubled Asset Relief Program: Further Actions Needed to Fully and Equitably Implement Foreclosure Mitigation Programs. GAO-10-634. Washington, D.C.: June 24, 2010. Debt Management: Treasury Was Able to Fund Economic Stabilization and Recovery Expenditures in a Short Period of Time, but Debt Management Challenges Remain. GAO-10-498. Washington, D.C.: May 18, 2010. Troubled Asset Relief Program: Update of Government Assistance Provided to AIG. GAO-10-475. Washington, D.C.: April 27, 2010. Troubled Asset Relief Program: Automaker Pension Funding and Multiple Federal Roles Pose Challenges for the Future. GAO-10-492. Washington, D.C.: April 6, 2010. Troubled Asset Relief Program: Home Affordable Modification Program Continues to Face Implementation Challenges. GAO-10-556T. Washington, D.C.: March 25, 2010. Troubled Asset Relief Program: Treasury Needs to Strengthen Its Decision-Making Process on the Term Asset-Backed Securities Loan Facility. GAO-10-25. Washington, D.C.: February 5, 2010. Troubled Asset Relief Program: The U.S. Government Role as Shareholder in AIG, Citigroup, Chrysler, and General Motors and Preliminary Views on its Investment Management Activities. GAO-10-325T. Washington, D.C.: December 16, 2009. Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) Fiscal Year 2009 Financial Statements. GAO-10-301. Washington, D.C.: December 9, 2009. Troubled Asset Relief Program: Continued Stewardship Needed as Treasury Develops Strategies for Monitoring and Divesting Financial Interests in Chrysler and GM. GAO-10-151. Washington, D.C.: November 2, 2009. Troubled Asset Relief Program: One Year Later, Actions Are Needed to Address Remaining Transparency and Accountability Challenges. GAO-10-16. Washington, D.C.: October 8, 2009. Troubled Asset Relief Program: Capital Purchase Program Transactions for October 28, 2008, through September 25, 2009, and Information on Financial Agency Agreements, Contracts, Blanket Purchase Agreements, and Interagency Agreements Awarded as of September 18, 2009. GAO-10-24SP. Washington, D.C.: October 8, 2009. Debt Management: Treasury Inflation Protected Securities Should Play a Heightened Role in Addressing Debt Management Challenges. GAO-09-932. Washington, D.C.: September 29, 2009. Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability Issues. GAO-09-1048T. Washington, D.C.: September 24, 2009. Troubled Asset Relief Program: Status of Government Assistance Provided to AIG. GAO-09-975. Washington, D.C.: September 21, 2009. Troubled Asset Relief Program: Treasury Actions Needed to Make the Home Affordable Modification Program More Transparent and Accountable. GAO-09-837. Washington, D.C.: July 23, 2009. Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability Issues. GAO-09-920T. Washington, D.C.: July 22, 2009. Troubled Asset Relief Program: Status of Participants’ Dividend Payments and Repurchases of Preferred Stock and Warrants. GAO-09-889T. Washington, D.C.: July 9, 2009. Troubled Asset Relief Program: June 2009 Status of Efforts to Address Transparency and Accountability Issues. GAO-09-658. Washington, D.C.: June 17, 2009. Troubled Asset Relief Program: Capital Purchase Program Transactions for October 28, 2008, through May 29, 2009, and Information on Financial Agency Agreements, Contracts, Blanket Purchase Agreements, and Interagency Agreements Awarded as of June 1, 2009. GAO-09- 707SP. Washington, D.C.: June 17, 2009. Auto Industry: Summary of Government Efforts and Automakers’ Restructuring to Date. GAO-09-553. Washington, D.C.: April 23, 2009. Troubled Asset Relief Program: March 2009 Status of Efforts to Address Transparency and Accountability Issues. GAO-09-504. Washington, D.C.: March 31, 2009. Troubled Asset Relief Program: Capital Purchase Program Transactions for the Period October 28, 2008 through March 20, 2009 and Information on Financial Agency Agreements, Contracts, and Blanket Purchase Agreements Awarded as of March 13, 2009. GAO-09-522SP. Washington, D.C.: March 31, 2009. Troubled Asset Relief Program: March 2009 Status of Efforts to Address Transparency and Accountability Issues. GAO-09-539T. Washington, D.C.: March 31, 2009. Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability Issues. GAO-09-484T. Washington, D.C.: March 19, 2009. Federal Financial Assistance: Preliminary Observations on Assistance Provided to AIG. GAO-09-490T. Washington, D.C.: March 18, 2009. Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability Issues. GAO-09-474T. Washington, D.C.: March 11, 2009. Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability Issues. GAO-09-417T. Washington, D.C.: February 24, 2009. Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability Issues. GAO-09-359T. Washington, D.C.: February 5, 2009. Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability Issues. GAO-09-296. Washington, D.C.: January 30, 2009. Troubled Asset Relief Program: Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency. GAO-09-266T. Washington, D.C.: December 10, 2008. Auto Industry: A Framework for Considering Federal Financial Assistance. GAO-09-247T. Washington, D.C.: December 5, 2008. Auto Industry: A Framework for Considering Federal Financial Assistance. GAO-09-242T. Washington, D.C.: December 4, 2008. Troubled Asset Relief Program: Status of Efforts to Address Defaults and Foreclosures on Home Mortgages. GAO-09-231T. Washington, D.C.: December 4, 2008. Troubled Asset Relief Program: Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency. GAO-09-161. Washington, D.C.: December 2, 2008.

Summary: The Emergency Economic Stabilization Act of 2008 (EESA) authorized Treasury to create TARP, designed to restore liquidity and stability to the financial system and to preserve homeownership by assisting borrowers struggling to make their mortgage payments. Congress reduced the initial authorized amount of $700 billion to $475 billion as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. EESA also required that GAO report every 60 days on TARP activities in the financial and mortgage sectors. This report provides an update on the condition of all TARP programs—nonhousing and housing—as of September 30, 2014. To conduct this work, GAO analyzed audited financial data for various TARP programs; reviewed documentation such as press releases, and agency reports on TARP programs; and interviewed Treasury officials. GAO provided a draft of this report to Treasury. Treasury generally concurred with GAO's findings and provided technical comments, which GAO has incorporated, as appropriate. GAO makes no recommendations in this report. The Department of the Treasury (Treasury) continues to wind down Troubled Asset Relief Program (TARP) nonhousing programs that were designed to support financial and automotive markets (see figure). As of September 30, 2014, Treasury had exited four of the nine nonhousing programs that were once active, and was managing assets totaling $2.9 billion under those remaining. Some programs have yielded returns that exceed the original investment. For example, as of September 30, 2014, repayments and income from participants in the Capital Purchase Program, which provided capital to over 700 financial institutions, had exceeded original investments. In contrast, as of the same date Treasury had recouped 86 percent of its expenditures and incurred an estimated lifetime cost of $12.2 billion for the Automotive Industry Finance Program, which invested in major domestic automakers to prevent a significant industry disruption. Treasury's decision to fully exit a program depends on various factors, including the participating institutions' health and market conditions. TARP-funded housing programs, which focus on preventing avoidable foreclosures, are ongoing. As of September 30, 2014, Treasury had disbursed $13.7 billion (36 percent) of the $38.5 billion in TARP housing funds (see figure). The number of new Home Affordable Modification Program (HAMP) permanent modifications added on a monthly basis rose in early 2013 but fell in 2014 to the lowest level since the program's inception. According to Treasury, this decline is attributable in part to the shrinking pool of eligible mortgages, as evidenced in the declining number of 60-day-plus delinquencies reported by the industry. Treasury has taken steps to help more borrowers, including by extending the deadline for program applications for a third time until at least 2016. Also, Treasury launched a new series of public service advertisements that were distributed through a donated media campaign.