Institutions’ Financial Strength and the Outcomes of Auctions Will Help Determine When Remaining Participants Exit CPP

While repayments and income from CPP investments have exceeded the  original outlays, the financial strength of participating institutions and the  outcome of future securities auctions will help determine when the  remaining institutions exit the program. However, the number of institutions that have missed payments has been  rising. Competing Goals and Market Conditions Have Affected Treasury’s Exit from GM and Ally

Since investing roughly $80 billion in the automotive industry, as of  September 30, 2012, Treasury had received more than $40 billion in  proceeds. Mortgage Programs Remain Active, and Oversight Has Shown Both Challenges and Improvements

To help meet EESA’s goals of preventing avoidable foreclosures and  preserving homeownership, Treasury allocated $45.6 billion in TARP  funds to three mortgage programs:
Making Home Affordable (MHA), which has several components,  including the Home Affordable Modification Program (HAMP);
Housing Finance Agency Innovation Fund for the Hardest Hit Housing  Markets (Hardest Hit Fund or HHF); and
Department of Housing and Urban Development’s (HUD) Federal  Housing Administration (FHA) Refinance of Borrowers in Negative  Equity Positions (FHA Short Refinance or FHASR). September 2012 only about 1.1 million permanent modifications had been  started.experienced a significant decline, as shown in figure 10. One process, which Treasury announced  in May 2011, requires large servicers participating in HAMP to identify a  “relationship manager” to serve as the borrower’s single point of contact  throughout the delinquency or imminent default resolution process,  effective September 1, 2011. By implementing this requirement, called  the single point of contact requirement, Treasury was seeking to enhance  communications between servicers and borrowers during the delinquency  resolution process.point of contact requirement, Treasury adopted compliance review  procedures to determine whether servicers (1) had established a single  point of contact in accordance with MHA requirements, (2) were  monitoring assignments and activities to verify that they were in  accordance with internal policies and MHA guidance, and (3) had created   To monitor servicers’ implementation of the single  written notices of assignments or changes and sent accurate, timely  information on them to borrowers. Treasury put in place another process aimed at enhancing borrower  assistance: a case escalation process for resolving borrower inquiries and  disputes. In its capacity as the MHA program administrator, Fannie Mae staffs the  HAMP Solution Center and oversees vendors that staff MHA Help and  the HOPE Hotline, according to Treasury. Treasury’s continued attention to resolutions of escalated  cases and the performance of the support centers and servicers is  instrumental in helping to ensure that eligible borrowers receive  appropriate assistance. Treasury, Ally Financial, and General Motors provided technical  comments that we have incorporated as appropriate. We are sending copies of this report to the Financial Stability Oversight  Board, Special Inspector General for TARP, interested congressional  committees and members, and Treasury. GAO staff who made major contributions to this report are listed in  appendix V.

Appendix I: Objectives, Scope, and Methodology

The objectives in this report were to examine the condition and status of  (1) nonmortgage-related Troubled Asset Relief Programs (TARP)  programs and (2) TARP mortgage programs, including Treasury’s efforts  to ensure that servicers are implementing two new requirements. To assess the condition and status of all the nonmortgage-related  programs initiated under the 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, 2012. Further, we reviewed Treasury documentation such as program terms,  press releases, and reports on TARP programs and costs. 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 American International Group, Inc. (AIG)
Investment Program (formerly the Systemically Significant Failing  Institutions Program), we reviewed relevant documents from Treasury  and other parties. To assess the status of TARP-funded mortgage programs and Treasury’s  efforts to ensure servicers are implementing the Making Home Affordable  (MHA) single point of contact and resolution of escalated cases  requirements, we reviewed Treasury reports, guidance, and  documentation and interviewed Treasury officials. That sale  marked the wind down of this TARP program. 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.
Why GAO Did This Study

The Emergency Economic Stabilization Act of 2008 authorized Treasury to create TARP, a $700 billion program designed to restore liquidity and stability to the financial system and to preserve homeownership by assisting borrowers struggling to make their mortgage payments. The act also required that GAO report every 60 days on TARP activities in the financial and mortgage sectors. This report examines the condition and status of (1) nonmortgage-related TARP programs and (2) TARP-funded mortgage programs and Treasury's efforts to better ensure that servicers are implementing as intended two new requirements designed to improve interactions with borrowers (the MHA single point of contact and resolution of escalated cases requirements). To do this work, GAO analyzed audited financial data for various TARP programs; reviewed documentation such as program terms and agency reports on TARP programs; and interviewed Office of Financial Stability officials.
Treasury generally agreed with the findings. Treasury, Ally Financial, and General Motors provided technical comments that GAO incorporated, as appropriate.

What GAO Found

As of September 30, 2012, the Department of the Treasury (Treasury) was managing assets totaling $63.2 billion in nonmortgage-related Troubled Asset Relief Programs (TARP). As of this date, Treasury had exited 4 of the 10 nonmortgage-related programs, and in December 2012 Treasury announced the exit from a fifth program--the American International Group (AIG) Investment Program. Exactly when Treasury will exit the remaining five programs remains uncertain. Treasury has identified several factors that will affect its decisions. For example,
for the Capital Purchase Program (CPP, created to provide capital to financial institutions), the financial condition of the participating institutions and the success of auctions;
for the Community Development Capital Initiative (CDCI, created to provide capital to credit unions and financial institutions in underserved communities), which Treasury has not yet decided to exit, the financial condition of the participating institutions and the rate at which the institutions repay Treasury; and
for the Automotive Industry Financing Program (AIFP, created to prevent a significant disruption of the American automotive industry).
Some programs, such as CPP, have yielded returns that exceed the original investments. Others, such as CDCI and AIFP, have not.
Unlike the nonmortgage-related TARP programs, TARP-funded mortgage programs, which focus on mitigating foreclosures, are ongoing, and Treasury's oversight of new requirements designed to improve servicers' interactions with borrowers showed both challenges and improvements. Treasury allocated $45.6 billion in TARP funds to three programs, including Making Home Affordable (MHA), but more than $40 billion of the funding has not yet been disbursed, and the programs have not reached the expected number of borrowers. The centerpiece of MHA is the Home Affordable Modification Program, which has provided about 1.1 million permanent modifications to borrowers. To help ensure that homeowners receive appropriate assistance from servicers under this and other MHA programs, since September 2011 Treasury has required servicers to identify a "relationship manager" to serve as the homeowner's single point of contact throughout a delinquency or imminent default resolution process. GAO found that Treasury's initial reviews of servicers' implementation of this requirement had identified some inconsistencies. However, oversight of a second requirement designed to improve the resolution of borrower inquiries and disputes (escalated cases) showed that the nine largest servicers had met the performance target. Treasury officials said that the MHA program administrator, Fannie Mae, handled oversight of the escalation process and the vendors who supported in keeping with Treasury's guidelines.