	Some TARP Programs, Including Those That Have Ended and Those That Remain Active, Continue to Present Challenges

According to OFS, from the inception of TARP through March 9, 2011, it  has disbursed $410 billion, and received more than $286 billion primarily  from interest, dividends, and principal repayments on direct loans,  repurchases of investments, and sales of investments. The reported net cost of TARP transactions from inception through  September 30, 2010, was $18.5 billion; however, the ultimate cost of TARP  will change as a result of (1) differences between the estimated values of  the direct loans and investments as of September 30, 2010, and the  amounts OFS will ultimately realize (as the assumptions and estimates  underlying the valuation of these assets are inherently subject to  substantial uncertainty), and (2) further disbursements, such as those  relating to the housing programs which are not subject to repayment. For example, a growing  number of CPP participants have missed scheduled dividend or interest  payments. Through February 2011, Treasury had received about $171 billion in full  and partial repayments from 146 institutions, including 28 institutions that  exchanged $363 million of their CPP investments for investments under  Treasury’s CDCI program. However, questions about the health of smaller  banks continue, and small institutions participating in CPP may face  challenges in fulfilling the terms needed to exit the program. About Half of the TALF Loans Have Been Repaid, but Continued Monitoring is Important

TALF provided loans to private investors to purchase asset-backed  securities (ABS) and commercial mortgage-backed securities (CMBS) to  encourage the issuance of new securitizations and provide liquidity for  new consumer and business loans. AIFP Illustrates both Progress and Ongoing Uncertainty in Recouping Assistance

From December 2008 through December 2009, Treasury announced $86.3  billion in funding available to help stabilize the auto industry and  disbursed $79.7 billion of this funding, including (1) about $62 billion to  fund Chrysler and GM while they restructured, (2) about $16.3 billion to  provide capital assistance to Ally Financial, and (3) $1.5 billion to a special  purpose vehicle (SPV) created by Chrysler Financial. As of March 9, 2011, approximately $29.5 billion had been repaid and  Treasury owned 33.3 percent equity in GM, 9.2 percent in Chrysler, and  73.8 percent in Ally. Since emerging from bankruptcy in the summer of 2009, Chrysler and GM  have shown signs of progress in returning to profitability; however, their  ability to fully repay the AIFP debt and equity investments depends on a  variety of factors, which will require Treasury’s ongoing oversight. Treasury’s Exposure to AIG Under TARP is Tied to the Current and Future Health of the Company and the Insurance Industry

In November 2008, Treasury began providing assistance to AIG, and with  the closing of AIG’s recapitalization plan in January 2011, this assistance  has risen still further, but AIG has recently started repaying its debt to  Treasury. The government’s prospects for recouping the assistance it has provided  largely rests with the return that Treasury earns when it sells its common  stock in AIG. As of  December 31, 2010, $1 billion in TARP funds had been disbursed for  TARP-funded housing programs, of which $840 million has been disbursed  for HAMP-related activity. In July 2009 and June 2010, we reported on the challenges Treasury faced  in implementing HAMP and made recommendations to improve the  transparency and equitable implementation of the program. In addition, we noted that Treasury had yet to  establish a comprehensive system of internal control for HAMP, including  metrics and benchmarks for servicers’ performance. Our most recent work shows there is more Treasury can do to ensure the  effective implementation of these programs, including ensuring that  servicers have sufficient capacity to implement them and that borrowers  are notified about potential eligibility for second-lien modifications. Treasury still  holds oversight responsibility for the fund managers until the funds no  longer hold assets. As of March 9, 2011, Treasury’s investments accounted for  about $15.9 billion of about $22.4 billion available to fund PPIP. Of this  investment, about $15.2 billion remained outstanding. Treasury had seen  unrealized capital gains of approximately $750 million. The existing TARP programs that are intended  to assist small businesses focused on capitalizing certain depository  institutions and stabilizing secondary markets for SBA-guaranteed loans. As of March 9, 2011, Treasury had provided about $570 million to 84  CDFIs, 28 of which had already participated in CPP. SBA 7(a) Securities Purchase Program, which was announced in March  2009 and closed in September 2010. As of March 9, 2011, Treasury had  made 31 purchases of SBA 7(a) securities totaling about $370 million. The Federal Reserve estimates that about 850,000  small business loans were financed in part by securities supported by  TALF. As we  have seen, some programs are still being implemented and others, while  having been closed or terminated, have assets that must be managed,  repaid, and divested. OFS has continued to make management and oversight enhancements. Our opinion on internal control over financial reporting is  based on criteria established under 31 U.S.C. Since the passage of EESA,  indicators generally suggest that credit markets have improved and while  the effectiveness of the TARP programs have varied, some have reportedly  had the desired effects, especially if stabilizing the financial system and  restoring confidence was considered to be the principal goal of the  intervention. January 12, 2011. Financial Audit: Office of Financial Stability (Troubled Asset Relief  Program) Fiscal Years 2010 and 2009 Financial Statements. August 3, 2010. Troubled Asset Relief Program: Home Affordable Modification Program  Continues to Face Implementation Challenges. March 25, 2010. October 8, 2009.
Why GAO Did This Study

This testimony discusses our work on the Troubled Asset Relief Program (TARP), which Congress established on October 3, 2008, in response to the financial crisis that threatened the stability of the U.S. financial system and the solvency of many financial institutions. Under the original TARP legislation, the Department of the Treasury (Treasury) had the authority to purchase or insure $700 billion in troubled assets held by financial institutions. The Secretary of the Treasury extended the authority originally provided under EESA through October 3, 2010. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)--signed into law on July 21, 2010--set a new spending ceiling for TARP, in effect prohibiting Treasury from incurring any additional obligations for programs that had not been initiated prior to June 25, 2010. A broad range of activities have been initiated under TARP. Specific initiatives have injected capital into key financial institutions; implemented programs to address problems in the securitization markets; provided assistance to the automobile industry and American International Group, Inc. (AIG); and offered incentives for modifying residential mortgages, among other things. As TARP passes the 30-month mark, U.S. financial markets appear to be less volatile than they were in 2008. But questions about a sustained economic recovery continue, and certain areas of the economy still face significant challenges. For example, foreclosures and mortgage delinquencies continue to linger and small businesses still face tight credit conditions. As a result, TARP has been transformed into a program that focuses primarily on preserving homeownership and improving financial conditions for small financial institutions and businesses. While many other programs have ended and begun winding down operations and some participating institutions have repaid part or all of their TARP funds, the prospect of repayment from some other institutions, both large and small, remains uncertain. This statement is primarily based on our January 12, 2011, report and focuses on (1) the status of TARP programs; (2) Treasury's progress in implementing an effective management structure for TARP, including staffing the Office of Financial Stability (OFS), overseeing contractors, and establishing a comprehensive system of internal controls; and (3) trends in key relevant economic indicators.

What GAO Found

Some TARP programs--Capital Assistance Program, Asset Guarantee Program, and Targeted Investment Program--have been terminated. Others, like the Capital Purchase Program (CPP) and the Term Asset-Backed Securities Loan Facility (TALF), have closed and are winding down operations, and several programs that focus on preserving homeownership and that have provided assistance to auto companies and AIG remain active. (1) CPP, which closed in December 2009, had $30.8 billion outstanding as of March 9, 2011, and had received about $171 billion in full and partial repayments from CPP participants. However, Treasury faces various oversight and management challenges in addressing missed dividend and interest payments and monitoring repayment requests. (2) Funding of TALF loans by the Federal Reserve Bank of New York (FRBNY) closed in June 2010, and no TARP funds had been expended as of March 9, 2011, to purchase collateral from FRBNY because no collateral had been surrendered to TALF LLC. TALF will continue to pose potential risks to Treasury until all loans are repaid to FRBNY and the program is terminated. (3) While the Home Affordable Modification Program (HAMP) remains Treasury's primary program to assist homeowners facing foreclosure, the program had a slow start and has not performed as anticipated. Treasury announced several new programs in 2010. As of March 9, 2011, $1.2 billion, none of it recoverable, had been disbursed for TARP housing programs. Our most recent work shows there is more Treasury can do to better ensure the effective implementation of this program. (4) The Automotive Industry Financing Program (AIFP) had an outstanding balance of just more than $44.2 billion as of March 9, 2011. At that time, approximately $29.5 billion had been repaid, but Treasury still owned 33.3 percent equity in General Motors (GM), 9.2 percent in Chrysler, and 73.8 percent in Ally. While the auto companies' financial conditions have shown signs of improvement, their ability to fully repay the AIFP debt and equity investments depends on a variety of factors, which will require Treasury's ongoing oversight. (5) AIG has continued to receive assistance over the last year provided largely rests with the return that Treasury earns when it sells its common stock in AIG. (6) The Public-Private Investment Program (PPIP) continues to be an active program with $15.9 billion disbursed as of March 9, 2011, and $15.2 billion outstanding. Of this investment, Treasury had seen unrealized capital gains of approximately $750 million. Treasury still holds oversight responsibility for the fund managers until the fund no longer holds assets. (7) The Community Development Capital Initiative (CDCI) and the SBA 7(a) Securities Purchase Program are small business programs that account for a small portion of TARP funding. CDCI closed in September 2010, and as of March 9, 2011, Treasury had provided about $570 million to 84 CDFIs, 28 of which had already participated in CPP. SBA 7(a) Securities Purchase Program closed in September 2010, and as of March 9, 2011, Treasury had made 31 purchases of SBA 7(a) securities totaling about $370 million.