SIGTARP: Quarterly Report to Congress | July 21, 2010 Congress to Quarterly Report SIGTARP: NSPECTOR L I GE IA NE C R E A P L S T R M O A U R B G L O ED R A F P SSET RELIE Office of the Special Inspector General Q3 for the Troubled Asset Relief Program SIGTARPSIGTARP 2010 SIGTARPSIGTARP Advancing Economic Stability Through Transparency, Coordinated Oversight and Robust Enforcement SIG-QR-10-03 202.622.1419 Hotline: 877.SIG.2009 Quarterly Report to Congress [email protected] July 21, 2010 www.SIGTARP.gov MISSION SIGTARP’s mission is to advance economic stability by promoting the efficiency and effectiveness of TARP management, through transparency, through coordinated oversight, and through robust enforcement against those, whether inside or outside of Government, who waste, steal or abuse TARP funds. STATUTORY AUTHORITY SIGTARP was established by Section 121 of the Emergency Economic Stabilization Act of 2008 (“EESA”) and amended by the Special Inspector General for the Troubled Asset Relief Program Act of 2009 (“SIGTARP Act”). Under EESA and the SIGTARP Act, the Special Inspector General has the duty, among other things, to conduct, supervise and coordinate audits and investigations of any actions taken under the Troubled Asset Relief Program (“TARP”) or as deemed appropriate by the Special Inspector General. In carrying out those duties, SIGTARP has the authority set forth in Section 6 of the Inspector General Act of 1978, including the power to issue subpoenas. Office of the Special Inspector General for the Troubled Asset Relief Program General Telephone: 202.622.1419 Hotline: 877.SIG.2009 [email protected] www.SIGTARP.gov CONTENTS Executive Summary 3 Program Updates and Financial Overview 8 Tarp In Context: Financial Institution Support and Policies Outside of Tarp – 2010 Update 9 Oversight Activities of SIGTARP 9 SIGTARP Recommendations on the Operation of TARP 13 Report Organization 14 Section 1 THE OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM 15 Sigtarp Creation and Statutory Authority 17 SIGTARP Oversight Activities Since the April 2010 Quarterly Report 17 The SIGTARP Organization 31 Section 2 TARP OVERVIEW 33 Homeowners Support Program 54 Financial Institution Support Programs 69 Asset Support Programs 91 Automotive Industry Support Programs 107 Executive Compensation 111 Section 3 TARP IN CONTEXT: FINANCIAL INSTITUTION SUPPORT AND POLICIES OUTSIDE OF TARP — 2010 UPDATE 113 Summary of Financial Assistance Programs 115 Specific Interventions/Programs 119 TARP Tutorial: How Banks Profit from Low Interest Rates 150 Section 4 TARP OPERATIONS AND ADMINISTRATION 159 TARP Administrative and Program Expenditures 161 Current Contractors and Financial Agents 162 Section 5 SIGTARP RECOMMENDATIONS 167 Recommendations Relating to Treasury’s Process for Selling Warrants Received from TARP Recipients 169 Recommendations Regarding the Home Affordable Modification Program (“HAMP”) 171 Recommendations Concerning Treasury’s Monitoring of Compliance with TARP Requirements by Companies Receiving Exceptional Assistance 180 Tracking the Implementation of Recommendations in Previous Reports 182 Endnotes 191 APPENDICES A. Glossary* 203 B. Acronyms and Abbreviations* 205 C. Reporting Requirements 208 D. Transaction Detail 212 E. Public Announcements of Audits* 260 F. Key Oversight Reports and Testimonies* 261 G. Correspondence 267 H. Organizational Chart 284 * Visit www.sigtarp.gov to view Appendix A: Glossary, Appendix B: Acronyms and Abbreviations, Appendix E: Public Announcements of Audits, Appendix F: Key Oversight Reports and Testimonies, and for further reference material. EXINVESTIGATIONSECUTIVE SUMMARY 4 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM QUARTERLY REPORT TO CONGRESS I JULY 21, 2010 5 EXECUTIVE SUMMARY It has been a remarkable quarter for the Troubled Asset Relief Program (“TARP”). An investigation conducted by the Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) resulted in criminal charges — in one of the most significant criminal cases to arise from the financial crisis thus far — against the former chairman of one of the largest mortgage lenders in the country for his alleged involvement in a multi-billion dollar fraud that included an attempt to steal more than $550 million of TARP funds, a scheme that was stopped by SIGTARP with no loss to TARP. And the signs of the gradual winding down of TARP are unmistakable: seven of the 13 TARP programs are effectively closed or are closing; this quarter marked an important milestone, with more TARP money having been repaid than is currently outstanding; and pending legislation would both reduce the upper limit of TARP and prevent any new spending except on programs already initiated prior to June 25, 2010. Notwithstanding this scaling back of TARP, an examination of the broader con- text demonstrates that the overall Governmental efforts to stabilize the economy have not diminished. Indeed, the current outstanding balance of overall Federal support for the nation’s financial system, in actual expenditures and guarantees, in- cluding ongoing initiatives run by the Federal Reserve System (“Federal Reserve”), the Federal Deposit Insurance Corporation (“FDIC”), the Department of Treasury (“Treasury”), the U.S. Department of Housing and Urban Development (“HUD”), and other Federal agencies, has actually increased more than 23% over the past year, from approximately $3.0 trillion to $3.7 trillion — the equivalent of a fully deployed TARP program, largely without additional Congressional action — even as the banking crisis has, by most measures, abated from its most acute phases.i This increase has focused primarily on additional Government support of the still-distressed housing market and the financial institutions whose fate has been so closely tied to it throughout this crisis, with additional support of asset prices and low interest rates (predominantly via the Government’s expanded role in the mortgage market through increases in HUD programs and support of Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) ) more than offsetting the decline in amounts out- standing under TARP and in the winding down of several Federal Reserve liquidity programs. Updating work from SIGTARP’s July 2009 Quarterly Report, and at the request of Senator Max Baucus, Section 3 of this report provides this broader per- spective and analyzes how the Government’s overall financial support efforts have changed over the past year. i As explained in further detail in Section 3 of this Report, this number is not intended to indicate the total amount of risk of loss to the Government because, among other things, many of the outstanding expenditures and guarantees are collateralized and there are areas of overlap among the various federal programs described. Please see Section 3, “TARP in Context: Financial Institutions Support and Policies Outside of TARP — 2010 Update” for a complete description of the methodology for calculat- ing this figure. 6 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM INCREMENTAL FINANCIAL SYSTEM SUPPORT, BY FEDERAL AGENCY SINCE 2007 ($ TRILLIONS) Current Balance as of Balance as of 6/30/2009 6/30/2010 Federal Reserve $1.5a $1.7 FDIC 0.3 0.3 Treasury — TARP (including Federal Reserve, FDIC 0.6 0.3 components) Treasury — Non-TARP 0.3 0.5 Other: FHFA, NCUA, GNMA, FHA, VA 0.3 0.8 Total $3.0 $ 3.7 Notes: Numbers affected by rounding. Amounts may include overlapping agency liabilities, and does not account for collateral pledged. See the “Methodology for Estimating Government Financial Commitments” discussion in Section 3: “TARP in Context: Financial Institu- tions Support and Public Policies Outside of TARP — 2010 Update” of this report for details on the methodology of this chart. Other agencies include: FHFA, National Credit Union Administration (“NCUA”), Government National Mortgage Association (“GNMA”), Federal Housing Administration (“FHA”), and U.S. Department of Veterans Affairs (“VA”). a This amount has changed from last year’s report due to a change in methodology in accounting for the Federal Reserve’s Maiden Lane facilities. See notes to Table 3.2 in this report for further explanation. Over time, the shift in emphasis away from bank liquidity and toward hous- ing support has been reflected in TARP as well, with the bank–related programs winding down and TARP funds being repaid. Many of Treasury’s recent efforts have focused on the Home Affordable Modification Program (“HAMP”) and related foreclosure prevention initiatives. Unfortunately, HAMP continues to struggle to achieve its original stated objective, to help millions of homeowners avoid foreclo- sure “by reducing monthly payments to sustainable levels.” Despite a seemingly ever increasing array of HAMP-related initiatives designed to encourage participa- tion in the program, the number of homeowners being helped through permanent modifications remains anemic, with fewer than 400,000 ongoing permanent modifications (only approximately 165,000 of which are in connection with the TARP-funded portion of HAMP), and HAMP has not put an appreciable dent in foreclosure filings. Indeed, the number of trial and permanent modifications that have been cancelled substantially exceeds the number of homeowners helped through permanent modifications. One continuing source of frustration is that Treasury has rejected calls to announce publicly any goals or performance