Skip to content Skip to footer site map

Navigate Up
Sign In
Home
Treasury For...
AboutExpand About
Resource CenterExpand Resource Center
Empty
ServicesExpand Services
InitiativesExpand Initiatives
CareersExpand Careers
Connect with UsExpand Connect with Us
 

  

 FAQs


 

Capital Assistance Program (CAP)

Please note, the Capital Assistance Program closed on November 9, 2009 without making any investments. These FAQs are provided for historical purposes.

Who can access the CAP program?

Generally speaking, any bank holding company, financial holding company, insured depository institution and savings and loan holding company, that engages solely or predominately in activities that are permissible for financial holding companies under relevant law, and that is organized and operating in the United States, qualifies as a QFI if it is deemed viable by the appropriate Federal banking agency. Financial institutions controlled by a foreign entity will not be eligible. For purposes of the Capital Assistance Program (CAP) eligibility, the deadline for approval of any pending holding company application is January 15, 2009, i.e. the same as the deadline for CPP eligibility.

Specifically, a QFI is defined as: (i) Any U.S. bank or U.S savings institution not controlled by a Bank Holding Company ("BHC") or Savings and Loan Company ("SLHC"); (ii) any top-tier U.S. BHC; and (iii) any top-tier U.S. SLHC that engages solely or predominately in activities that are permitted for financial holding companies under relevant law. A "QFI" shall not mean any BHC, SLHC, bank or savings association controlled by a foreign bank or company.

What is the deadline to apply to the CAP?

The deadline for all institutions has been extended to November 9, 2009. Institutions that receive preliminary approval from Treasury will have until November 9, 2009 to close the transaction.

How does CAP work? What type of securities can be issued under CAP?

To ensure that the banking system has the capital it needs to provide the credit necessary to support economic growth, the Treasury is making capital available under its Capital Assistance Program as a bridge to private capital in the future. A BHC may apply for Mandatory Convertible Preferred (MCP) in an amount up to 2% of risk-weighted assets (or higher upon request). MCP can serve as a source of contingent common capital for the firm, convertible into common equity when and if needed to meet supervisory expectations regarding the amount and composition of capital. Treasury will consider requests to exchange outstanding preferred shares sold under the CPP or the Targeted Investment Program (TIP) for new mandatory convertible preferred issued under the CAP. In order to protect the taxpayer interest, the Treasury expects that any exchange of Treasury-issued preferred stock for MCP will be accompanied or preceded by new capital raises or exchanges of private capital securities into common equity.

The MCP instrument is designed to give banks the incentive to redeem or replace the government-provided capital with private capital when feasible. The term sheet for MCP is available at www.financialstability.gov.

Will firms that access the CAP be subject to additional terms and conditions beyond those that apply to firms accessing CPP?

Recipients of capital under the CAP will be required to submit a plan for how they intend to use the capital to increase lending activities above levels relative to what would have been possible without government support. This plan will be submitted during the application process, and the Treasury Department will make these plans public upon distribution of the capital investment to the firm. These firms must also submit monthly and quarterly reports to Treasury on their lending by category and will include a comparison to estimates of what their lending would have been in the absence of government support. All these reports will be put on FinancialStability.gov.

All CAP recipients will also commit to participate in the Home Affordable Modification Program. They will also be required to comply with final version of the executive compensation restrictions when announced.

To ensure that any taxpayer dollars invested by the government under the CAP improve banks' capital bases and promote lending, any firm accepting assistance under the CAP will be subject to the following restrictions until it repays all funds provided to it under the CAP:

  • 1. Restricted from paying quarterly common stock dividend payments in excess of $0.01 per share unless approved by Treasury and the primary regulator as consistent with the firm reaching its capital planning objectives.

  • 2. Restricted from repurchasing common stock, preferred stock, or trust preferred. Special approval for share repurchases may be granted by the Treasury Department and the banking institution's primary regulator.

  • 3. Restricted from pursuing acquisitions. Banking institutions that receive CAP funds are restricted from pursuing cash acquisitions of healthy firms until the government investment is refinanced. Exceptions will be made for regulator-approved restructuring plans.

Can banks that did not participate in the SCAP access the CAP?

Yes. Banks outside of the 19 institutions that participated in the SCAP can access the CAP.

What criteria will Treasury use for granting preliminary approval for the CAP?

For institutions that participated in the SCAP, Treasury will rely on the assessments completed by the banking supervisors, and seek to understand how CAP fits into an institution's broader capital plan.

For the institutions that did not participate in SCAP, Treasury will use the existing viability standard (which formed the basis of all investment decisions made in the CPP) and rely on the recommendations of the bank's supervisors. The viability standard states that an institution must be deemed viable without Treasury's investment.

Can firms that repay their CPP access CAP at a later date?

Applications for CAP will only be accepted until November 9, 2009.

Will banks that did not go through the SCAP, but wish to access the CAP be forced to undergo their own stress test?

There are no plans to put other banking institutions through the SCAP.

However, in making their recommendations to Treasury for CAP approval, supervisors will review those firms' risk profiles and capital positions. They will evaluate the firms' internal capital assessment processes, including capital planning efforts that incorporate the potential impact of stressful market conditions and adverse economic outcomes.

Should a CAP applicant notify Treasury of its application?

No. Banks should work through their primary federal regulator.

If an institution voluntarily applies for and is preliminarily approved by Treasury to participate in the CAP, may that institution later decide that it does not want to close the CAP transaction? When such an institution is preliminarily approved for a CAPinvestment, what is the period of time within which the transaction must be consummated?

If an institution that did not participate in the SCAP applies and is preliminarily approved for CAP, they are not obligated to close the transaction. Institutions receiving preliminary approval will have until November 9, 2009 to decide whether or not to complete the transaction. Institutions that did participate in the SCAP will not be required to complete the transaction either, but must work with their supervisors to ensure that they meet the SCAP buffer.

The term sheet states that CAP is redeemable at par, plus accrued and unpaid dividends within the first two years of issuance. Does the two year period begin on the preliminary approval date or the closing date?

The 2-year period begins on the date of preliminary approval.

The CAP term sheet section on Size states the following: "each QFI may issue an amount of CAP equal to not less than 1% of RWA and not more than 2% of RWA plus any CAP to the extent the proceeds of such additional CAP are used to redeem CPP or TIP". Would you please explain this?

CAP issuance can potentially be used in part to redeem CPP or TIP, and Treasury will consider requests to exchange outstanding preferred shares. Institutions that have already issued preferred equivalent to 3% of RWA under CPP, may apply issue MCP under CAP of up to 5% of RWA as long as MCP equivalent to 3% of RWA is used to redeem the original CPP investment.

In order to protect the taxpayer interest, the Treasury expects that any exchange of Treasury-issued preferred stock for MCP will be accompanied or preceded by new capital raises or exchanges of private capital securities into common equity.

If a financial institution has multiple TARP preferred stock series, can they choose which series to convert to CAP?

No. The CPP series should be converted first.

If a financial institution converts a CPP or TIP series into CAP, can the institution choose the order in which it pays off the CPP, TIP and CAP in the future?

Yes. Financial institutions have discretion on which securities to repay first.

Does the "dividend stopper" only require stopping dividends on other shares if dividends on the CAP are not current?

Yes.

Is the 20% requirement for warrants incremental to or in aggregate with the existing warrants on the converted CPP or TIP?

The warrant requirement is incremental.

Can an institution purchase warrants prior to redeeming the CAP? What happens to any warrants issued under CPP?

No, the warrants can only be purchased following redemption in whole of the MCP. A security issued under the CAP, if for the full amount of preferred issued under CPP, counts as a qualified equity offering, and cuts the number of warrants issued under CPP in half.

Will Treasury's agreement to sell shares over five years (which begins on mandatory conversion) start immediately after voluntary conversion or at a different time?

Yes. It will begin on the date of optional/voluntary conversion.

What additional executive compensation restrictions, if any, will be placed on CAP recipients?

The Treasury's regulations will provide further clarity around executive compensation. These details are expected to be released soon.

CAP Deadline

 

FAQ on Application Deadline for the Capital Assistance Program

In order to ensure compliance with the previously announced funding deadline of November 9, 2009, qualifying institutions wishing to participate in the CAP are encouraged to submit their application to the appropriate Federal banking agency by October 15, 2009. This will provide sufficient time for review and will enable preliminarily approved applicants to meet the funding deadline.

Community Development Capital Initiative

CDCI Program FAQs

Please note, the final investment under the CDCI was made in September 2010. These FAQs are provided for historical purposes only.

Which financial institutions are eligible to participate in the TARP Community Development Capital Initiative (CDCI)?

Generally speaking, the following institutions are eligible to apply to participate in the CDCI: any bank, savings association, bank holding company, savings and loan holding company which engages solely or predominately in activities that are permitted for financial holding companies under  relevant law, and federally insured low-income designated credit union is eligible to participate if it is (i) certified by the United States Department of the Treasury's (Treasury) CDFI Fund as a Community Development Financial Institution (CDFI); (ii) regulated by a federal banking or credit union agency; and (iii) organized under the laws of the United States. Financial institutions that are controlled by a foreign entity will not be eligible. The appropriate federal banking or credit union agency will make a recommendation to Treasury regarding an applicant's viability. In the case of state-regulated credit unions, an eligibility and viability determination will be made jointly by the state agency and the federal agency.

Viability will be determined either (i) without CDCI funds or (ii) on a pro forma basis. Pro forma viability means that the regulator may take into account junior private investor capital raised in conjunction with capital provided under the CDCI in an amount at least equal to the CDCI funding. If CDCI funding is contingent on successful completion of a private capital raise, the amount of CDCI funding (inclusive of any other Treasury bank capital programs) shall not exceed the CDCI program limits (5% of risk-weighted assets or 3.5% of total assets, in the case of credit unions). As a condition of funding, applicants must also comply with any other requirements set forth by their regulator.

Can a Qualified Financial Institution (QFI) apply to exchange securities issued under the TARP Capital Purchase Program for securities issued under the CDCI?

Yes, a QFI may apply to exchange securities issued under the TARP Capital Purchase Program for securities issued under the CDCI without applying for additional capital under the CDCI. QFIs seeking to exchange Capital Purchase Program securities as well as receive additional capital for a combined total of 5% of risk-weighted assets under the CDCI must be reviewed and recommended by the institution's regulator for the additional capital. Exchanges of existing CPP preferred stock for preferred stock under the CDCI shall occur as soon as practicable upon filing of an application for exchange without regard to whether the institution is also seeking additional capital.

How does a QFI apply to participate in the CDCI?

A QFI must submit an application to the appropriate federal banking agency or credit union agency or, in the case of an exchange, Treasury. If the applicant is a bank holding company, the application should be submitted to both the applicant's holding company supervisor and the supervisor of the largest insured depository institution controlled by the applicant. The application is available at www.financialstability.gov.

What is the deadline for applying to be certified as a CDFI in order to become eligible for the CDCI?

The institution must submit its application for certification as a CDFI to the CDFI Fund no later than 5:00 p.m. (EST) on April 30, 2010 (revised from April 16th deadline previously). Institutions that are applying to become CDFIs should also apply to the CDCI as soon as practicable.

What is the deadline for applying to participate in the CDCI?

The application by a QFI must be received by the institution's appropriate federal banking or credit union agency or, in the case of an exchange, Treasury, at the location specified by the agency no later than 5:00 p.m. (EST) on April 30, 2010 (revised from April 2nd deadline previously). QFIs are encouraged to submit their applications as soon as practicable.

Is there an application form?

Yes. The federal banking and credit union agencies, working in consultation with Treasury, have developed application forms that may be used by QFIs seeking to participate in the CDCI. The application forms are available at www.financialstability.gov. All inquiries regarding preparation of the application should be directed to the appropriate agency.

Will applications filed by the QFIs be released publicly?

No. The CDCI applications are confidential proposals submitted for review by each institution's regulator. Applications that are denied or withdrawn will not be disclosed. However, Treasury will provide electronic reports detailing any completed transactions, as required by the Emergency Economic Stabilization Act of 2008, within 48 hours. These reports will be made available at www.financialstability.gov.

Who should a QFI contact if it has a question regarding how to file an application or the status of a submitted application?

The QFI should contact the appropriate federal banking or credit union agency using the contact information provided on the above referenced agency's web site.

Will a QFI receive verification that its application has been filed with the appropriate federal banking or credit union agency or, in the case of an exchange, Treasury?

Yes.

How long will it take for an application to be processed?
Treasury, working in consultation with the federal banking and credit union agencies, will process and make a determination on all applications submitted to the CDCI as soon as reasonably possible. The completion of processing will depend on the complexities of the application. Where additional private investor capital is deemed necessary, it will be incumbent on the applicant to provide sufficient detailed information to their primary banking regulator and/or Treasury to support their application.

How will a QFI that has filed a timely application be notified when a preliminary decision on the application has been made by Treasury?
Preliminary decisions on application will be communicated by Treasury to the representative of the institution identified on the application form.

What is the deadline for funding and exchanges?
Funding and exchanges must be completed no later than 5:00 p.m. (EST) on September 30, 2010.
Will Treasury require warrants?
Treasury does not anticipate requiring participating institutions to issue warrants under the CDCI. In accordance with the requirements of Section 113(d)(3)(A) of the Emergency Economic Stabilization Act of 2008, a QFI participating in this program will not be required to issue warrants to Treasury unless it has received TARP funds totaling more than $100 million under any TARP program, including the CDCI.

Are participants in the CDCI subject to executive compensation requirements?
Yes, participants in the CDCI will be subject to the same executive compensation requirements that apply to other TARP recipients.

Are institutions organized as mutuals and S-Corporations eligible for funding under the CDCI?
Yes, these institutions are eligible for funding and should apply to their primary federal regulator using the bank application form available on www.financialstability.gov.

When does a QFI submit the final documentation to complete the Treasury investment?
For institutions accepted into the program without a requirement to raise additional capital, final documentation must be submitted no later than 30 days after a QFI has been notified that it has received preliminary acceptance. Instructions for submitting final documentation will be available on Treasury's web site at www.financialstability.gov. Any QFI required by its regulator to raise additional capital as a condition of program participation must submit its proposed plan for raising such capital, including an expected closing date, no later than 30 days following receipt of this notice.


CDCI Program Additional FAQs

Please note, the final investment under the CDCI was made in September 2010. These FAQs are provided for historical purposes only.

My institution was not a CDFI and previously issued a warrant to United States Department of the Treasury (Treasury) when participating in the Capital Purchase Program (CPP). How will Treasury treat the outstanding warrants if my institution now participates in the CDCI?

If a CPP participant issued a warrant to Treasury for common shares, the warrant shall remain outstanding. If a CPP participant issued a warrant to Treasury for preferred shares or senior securities, Treasury would have exercised the warrant at closing, and the capital or principal amount, as applicable, of those financial instruments will be aggregated with the capital or principal amount of all outstanding CPP financial instruments when it is exchanged into the CDCI financial instrument.

QFIs must be in "good standing" under any outstanding Troubled Asset Relief Program (TARP) financial instrument in order to participate in CDCI. What does that mean?

Each QFI must be in material compliance with all the terms, conditions and covenants of any TARP financial instrument including, but not limited to, executive compensation requirements, reporting requirements and payment of dividends or interest. In addition, (i) for cumulative instruments, issuers must pay as of the closing date in immediately available funds all accrued and unpaid dividends or interest; and (ii) for non-cumulative instruments, issuers must pay as of the closing date in immediately available funds the amount, if any, of unpaid dividends or interest for the fiscal quarter prior to the closing date plus the accrued and unpaid dividends or interest as of the closing date for the fiscal quarter in which the closing shall occur.

I am a current participant in the CPP, am (or will become) a QFI for the CDCI, and would like to both (1) exchange my current CPP instrument(s) for the CDCI instrument(s); and (2) apply for incremental funding amounts under the CDCI. Do I need to both file an exchange application with Treasury at CDCI@do.treas.gov and a "new investment" application with the relevant Federal Banking Agency?

Yes.

CDCI FAQ Regarding Application Deadline

Please note, the final investment under the CDCI was made in September 2010. These FAQs are provided for historical purposes only.

Was the deadline for submitting applications to CDCI and for applying to become a CDFI with the CDFI Fund extended?

Yes, the deadline to apply for the CDCI program has been extended from 5:00 p.m. (EST) April 2nd to 5:00 p.m. (EST) April 30th, 2010. The deadline for institutions to apply for CDFI certification with the CDFI Fund in order to participate in the program has been extended from 5:00 p.m. (EST) April 16th to 5:00 p.m. (EST) April 30th, 2010.


Additional Information for CDCI Participants – September 16, 2010

 


Capital Purchase Program (CPP)

Additional guidance on repayments (issued May 2009)

What is the policy for returning CPP money?

Under the original terms of the CPP, banks were prohibited from repaying within the first three years unless they completed a qualified equity offering. However, the provisions introduced by the American Recovery and Reinvestment Act of 2009 indicate that once an institution notifies Treasury that it would like to repay its CPP investment, the Treasury must permit a TARP recipient to repay subject to consultation with the appropriate Federal Banking Agency.
All institutions seeking to repay CPP will be subject to the existing supervisory procedures for approving redemption requests for capital instruments. Supervisors will carefully weigh an institution's desire to redeem outstanding CPP preferred stock against the contribution of Treasury capital to the institution's overall soundness, capital adequacy, and ability to lend, including confirming that the institution has a comprehensive internal capital assessment process.

The 19 bank holding companies (BHCs) that were subject to the Supervisory Capital Assessment Program (SCAP) or "stress test" process must have a post-repayment capital base at least consistent with the SCAP buffer, and must be able to demonstrate its financial strength by issuing senior unsecured debt for a term greater than five years not backed by FDIC guarantees, in amounts sufficient to demonstrate a capacity to meet funding needs independent of government guarantees.

What will happen to the warrants that Treasury owns in these banks?

After repaying their CPP preferred stock, institutions also have the right to repurchase the warrants issued to Treasury for their appraised market value. If an institution chooses not to repurchase the warrants, Treasury may liquidate registered warrants. The warrants cannot be sold to an investor until the bank has had an opportunity to repurchase them.

How will you value the warrants that you own in banks that are repaying CPP investments?

The issuer can repurchase the warrants at "fair market value," as defined in Section 4.9 of the Securities Purchase Agreement. Specifically, the bank wishing to repurchase warrants will hire an independent advisor that will use standard industry practices to value the warrants and will present the offer to Treasury, which will independently calculate its own determination of fair market value using a robust process which includes third party input. If those values differ, then Treasury and the bank will followed the process defined in Section 4.9 to reach a mutually agreed upon fair market value.

How will the public know when a firm has repaid its CPP preferred or repurchased Treasury's warrants?

Information on CPP preferred repayments and warrant repurchases is made available online and updated regularly in the TARP Transactions Reports. Check our Reports Section to see all of the reports.

For CPP participants who have used the public institution transaction documents, how is the warrant exercise price calculated?
Treasury is aware that there is some confusion around this calculation. All warrant exercise prices have been calculated in a consistent manner, taking the average of the closing prices for the twenty trading days up to and including the day prior to the date on which the TARP Investment Committee recommends that the Assistant Secretary for Financial Stability approve the investment. Please note that (i) the recommendation of the Investment Committee constitutes preliminary approval, but final approval of an investment occurs only when the transaction documents are executed and delivered by Treasury; and (ii) a trading day is defined as a day on which where was trading activity in a given name.

 

Capital Purchase Program (CPP)

Missed Dividend or Interest Payments and Treasury's Exercise of Contractual Rights

Questions Related to Missed Dividend or Interest Payments and Board Observers

Why does Treasury request permission to send observers to the board of directors of CPP participating institutions?

When an institution decided to participate in the CPP, it entered into a securities purchase agreement (Agreement) with Treasury, which provided Treasury the contractual right to nominate up to two members to the board of directors upon the sixth missed dividend or interest payment. Treasury requests permission to send observers to certain institutions once they miss five dividend or interest payments to help determine how to best exercise its contractual rights to nominate up to two directors.

Who does Treasury send to act as an observer to the board of directors of institutions that have missed five dividend or interest payments?

Treasury selects qualified members of the Office of Financial Stability (OFS) staff to act as observers.  Observers, therefore, are at all times Treasury employees and not employees of the institutions they are sent to observe.

How do observers participate in board of director meetings?

Observers limit their participation to asking clarifying questions on materials distributed, presentations made and actions proposed or taken. They also respond to questions concerning the observer's role. Observers leave a meeting, or any portion, if asked by the members of the board of directors.

How does Treasury treat the information received by an observer?

The information disclosed during, or in connection with, board of directors meetings is treated as any other information received pursuant to the Agreement, in particular, Section 3.5 ("Access, Information and Confidentiality"). As set forth in Section 3.5, Treasury uses its "reasonable best efforts to hold… and cause its agents, consultants, contractors and advisors to hold, in confidence [information received]" subject to certain exceptions.

If an institution voluntarily grants permission to Treasury to send observers, what expenses in connection with the observer is paid by the institution?

Treasury is responsible for all of the observer's compensation and travel expenses, if any, as part of the observation of board of director meetings.

Can an institution request that Treasury send observers prior to having five unpaid dividend or interest payments?

Yes, while Treasury does not request permission to send an observer to an institution until it has five unpaid dividend or interest payments, an institution can request that Treasury send an observer before the institution has five unpaid dividend or interest payments.

Questions Related to Missed Dividend or Interest Payments and Director Nomination

When does Treasury consider nominating up to two members to the board of directors?

Pursuant to the Agreement, Treasury has a contractual right to nominate up to two members to the board of directors of an institution after the institution has six unpaid dividend or interest payments. Treasury determines how to best exercise this contractual right after a full evaluation of its investment including information provided by the observers. Among institutions that have missed six dividends or interest payments, Treasury will set priorities as to the ones for which it nominates directors based on the size of its investment, Treasury's assessment of the extent to which new directors may make a contribution and Treasury's ability to find appropriate directors for a given institution. Treasury will focus first on institutions where Treasury's investment exceeds $25 million. Treasury may send observers to an institution's board of directors meetings in the interim and its assessment of whether new directors can make a contribution will be informed in part by any information provided by the observers.

How does Treasury select the members to be nominated to the board of directors if Treasury believes that exercising its nomination right is in the best interest of taxpayers?

Treasury engages executive search firms to find a list of candidates suitable to act as members of the board of directors of financial institutions. After obtaining a list of candidates for each institution for which Treasury is considering exercising its rights, Treasury reviews and select members from this list to serve on an institution's board of directors. Treasury has developed criteria and protocols to guide the review and selection process.

Are the members nominated to the board of directors by Treasury government employees? Who bears the compensation and other expenses related to the members of the board of directors nominated by Treasury?
Members nominated to the board of directors by Treasury are not government employees.  The compensation and other expenses related to any member of the board of directors nominated by Treasury is paid by the related financial institution to the same extent as any other member of the board of directors.

Do members of the board of directors nominated by Treasury represent Treasury?

No. Members of the board of directors nominated by Treasury do not represent Treasury. Members of the board of directors nominated by Treasury have the same fiduciary duties and obligations to the shareholders of the financial institution as any other member of the board of directors.

Can the members of the board of directors nominated by Treasury require an institution to make dividend or interest payments?

No. Members of the board of directors nominated by Treasury have the same fiduciary duties and obligations to the shareholders of the institution as any other member of the board of directors. The board of directors, using its best business judgment, decides when and how to deploy the institution's capital, including whether to make dividend or interest payments.

How long do members of the board of directors nominated by Treasury serve on the board of directors?

Once nominated by Treasury, members of the board of directors serve until (a) Treasury's rights to nominate members to the board of directors expires due to the payment of dividends or interest pursuant to the legal documentation governing Treasury's investment or (b) Treasury chooses to nominate a replacement director. Nonetheless, even after Treasury's right to nominate a director expires, a financial institution can voluntarily choose to retain the director if it believes that it is in the best interest of the institution to do so.

Do Treasury observers continue to attend board of directors meetings if Treasury nominates members to the board of directors of an institution?

No. Once Treasury nominates members to an institution's board of directors, Treasury discontinues having a Treasury employee observe the board of directors meetings of that institution.

Capital Purchase Program Deadline

Please note, the final investment under the CPP was made in December 2009. These FAQs are provided for historical purposes only.

When is the deadline for CPP applicants to complete the funding process?

All CPP applicants who have received preliminary approval must complete funding by December 31, 2009. This includes applicants to the CPP for Small Banks expansion launched in May 2009. While the application deadline for CPP for Small Banks is November 21, 2009, we encourage qualifying institutions to submit their application as soon as possible to allow for sufficient time for application processing.There will be no funding transactions under the CPP after the end of this year.

Employ American Workers Act and the Capital Purchase Program

If Treasury holds only warrants in an entity, will that entity be considered a "recipient of funding" for purposes of the Employ American Workers Act (the "EAWA")?

No. An entity in which the Treasury holds only warrants is not a "recipient of funding" for purposes of the EAWA.

Capital Purchase Program Expansion for Small Banks

Please note, the final investment under the CPP was made in December 2009. These FAQs are provided for historical purposes only.

Who is eligible to participate in the expansion of CPP, also known as CPP for Small Banks?

The expansion of CPP is designed to encourage participation by small community banks which are qualified financial institutions as defined under any published term sheet. For the purposes of the CPP expansion, viable banks with less than $500 million of total assets are eligible to apply for up to 5% of their RWA. For holding companies with more than one bank, all bank assets will be aggregated and only holding companies with total assets of less than $500 million are eligible.

Is Treasury accepting applications under all seven term sheets?

Yes. The new application deadline for small banks to apply, under any term sheet, is November 21, 2009.

Where can my bank find an application form?

Please use the existing CPP application form, which can be found at http://www.financialstability.gov/docs/CPP/applicationguidelines.pdf.

If my bank has never applied to CPP, are we eligible for the expansion?

Yes. The application process for new applicants is the same as the original CPP application process. Please see previously posted FAQs for application details, and apply to both your primary and holding company regulator, if applicable.

If my bank is currently a participant in CPP, can we apply for additional funds up to the 5% maximum?

Yes. Treasury is working with the federal banking agencies to establish an expedited application process for banks in your situation. Your bank will need to fill out the original application available which will be posted on all four federal banking agencies' websites. Please note on the application that this is a supplemental request, the total assets held by your bank, and your UST sequence number, assigned by the Treasury. Please apply to both your primary and holding company regulator, if applicable. The agencies will evaluate the application and make a recommendation to the Treasury, which will process the applications as quickly as possible on a first come, first serve basis.

If my bank is currently a participant in CPP and has not declared a dividend for at least one quarter, are we eligible for the expansion?

CPP participants need to be current on dividend payments in order to qualify for additional CPP capital. Participants that issued cumulative preferred must not have any deferred dividends, and participants that issued non‐cumulative preferred must have paid a dividend for the most recent period.

If my bank has received preliminary approval from the Treasury and has not yet completed the transaction, are we eligible to apply for additional funds up to the 5% maximum?

Yes. If your institution is in this situation, please notify the Treasury and your primary federal banking agency of your increased request. Please notify the Treasury via CPP@do.treas.gov . Treasury will confirm your request with your primary federal banking agency, and your institution can work with assigned UST closing counsel to finalize all necessary transaction documentation and schedule a funding date.

If my bank has submitted an application for CPP under the original program and has not yet received preliminary approval from Treasury, are we eligible for the expansion?

Yes, please contact the appropriate federal banking agency to inform them of your request.

The Secretary said that there would be expedited processing. How will this be implemented?

As noted above, institutions that have been preliminarily approved but not funded can contact Treasury directly to increase their request to 5% of risk weighted assets. Existing CPP participants can submit a revised application to the appropriate FBA, and Treasury will receive a brief analysis from the FBA discussing an institution's continued qualification for participation in CPP. Treasury will process these applications on an expedited basis.

If my bank would like to form a holding company for the purposes of participating in the CPP expansion, how long do we have to apply for holding company status?

Your bank must receive approval to become a holding company by November 21, 2009.

If my bank participates in the CPP expansion, will we be required to issue warrants to Treasury for the additional investment?

No. Small banks will only be required to issue warrants for the first 3% of Treasury's CPP investment, and not for any incremental investment.

If my bank participates in the CPP expansion, how long after receiving preliminary approval do we have to decide whether or not to complete the transaction?

Your bank will have six months from the date of preliminary approval, but in no event later than December 31, 2009, as may be extended pursuant to EESA, to enter into a binding Letter Agreement with Treasury to fund the transaction.

CPP Logistics (issued February 26, 2009)

Can my bank redeem its CPP investment under terms other than those specified in the original transaction documents?

Yes. This answer applies to all CPP participants, irrespective of funding dates but this does not apply to participants in the Capital Assistance Program, announced on February 25, 2009.

 

If my bank determines that it would like to redeem its CPP investment, what is the process?

Please notify your primary regulator of your desire to redeem. Also, please notify Treasury at CPPRedemption@do.treas.gov. After receiving your notice, Treasury and your primary regulator will consult about the request. When all consultations have been completed, we will contact you to discuss the redemption request. Details of the redemption and completion of all necessary documentation will be handled by your original UST counsel.

 


What does the consultation with my primary regulator involve?

Treasury is working with the four federal banking agencies to determine what factors are involved in the consultation.

 

Can my bank redeem part of its CPP investment at this time?

CPP participants wishing to repay part of its CPP investment must pay a minimum of the greater of (i) 5%of the issue price of the preferred and (ii) $100,000.00 in principal amount."

 

Where should my bank send the money?

It is important that you go through the process noted above to get detailed transfer instructions to make sure that all payments are attributed correctly.

 

Can my bank purchase the warrants at the time we redeem Treasury's investment?

Yes. This right is given under Section 4.9 of the Securities Purchase Agreement, which permits the issuer to repurchase the warrants at "fair market value" as defined in the agreement, which details the procedure for determining this value. Treasury will work with you to facilitate the repurchase process. Your warrants cannot be sold to an investor until you have had an opportunity to repurchase them.

 

If my bank does not purchase the warrants at this time, what happens to them?

If your bank does not choose to exercise its option to repurchase the warrants, Treasury will attempt to liquidate registered warrants as soon as possible.

 

My bank participated in CPP under the private company transaction documents, and the warrants we issued to Treasury were exercised immediately upon closing. Can we redeem the warrant preferred shares at the same time we redeem the original preferred investment?

Yes.

 

When my bank repays Treasury's investment, are we responsible for unpaid dividends?

Yes. In the case of the cumulative senior preferred, you must pay any accrued and unpaid dividends. In the case of the non‐cumulative senior preferred, you must pay accrued and unpaid dividends for the current dividend period, regardless of whether any dividends are actually declared for that period.

 

Credit Market Programs

Legacy Securities Public Private Investment Program (PPIP)
July 8, 2009

Set forth below is an update to the FAQs released on May 13, April 21, April 6 and March 23, 2009 (included as Exhibits A, B, C and D, respectively). Treasury anticipates providing updated FAQs throughout the Legacy Securities PPIP process. Any subsequent updates shall supersede previously released FAQs as applicable.

How did Treasury select the nine pre-qualified Legacy Securities PPIP fund managers?

Treasury received over 100 unique applications to participate in the Legacy Securities PPIP. These applications were evaluated according to established criteria, including: (i) demonstrated capacity to raise at least $500 million of private sector capital; (ii) demonstrated experience investing in Eligible Assets, including through performance track records; (iii) a minimum of $10 billion (market value) of Eligible Assets under management; (iv) demonstrated operational capacity to manage the Funds in a manner consistent with Treasury's stated Investment Objective while also protecting taxpayers; and (v) headquartered in the United States. To ensure robust participation by both small and large firms, these criteria were viewed on a holistic basis and failure to meet any one criterion did not necessarily disqualify an application.

In addition to the evaluation of fund manager applications, Treasury has conducted legal, compliance and business due diligence on each pre-qualified Legacy Securities PPIP fund manager. The due diligence process encompassed, among other things, in-person management presentations and limited partner reference calls. Treasury has negotiated equity and debt term sheets (please see FAQ below titled "What are the terms of Treasury's equity and debt investments in a PPIF?") for each pre-qualified Legacy Securities PPIP fund manager. Treasury will continue its due diligence during final documentation and expects the first closing to take place in early August.

How will small-, veteran-, minority-, and women-owned businesses participate in the Legacy Securities PPIP?

Pre-qualified Legacy Securities PPIP fund managers have established meaningful partnership roles for small-, veteran-, minority-, and women-owned businesses. These roles include, among others, asset management, capital raising, broker-dealer, investment sourcing, research, advisory, cash management and fund administration services. Collectively, the nine pre-qualified Legacy Securities PPIP fund managers have established 10 unique relationships with leading small-, veteran-, minority-, and women-owned financial services businesses, located in five different states. Moreover, as Treasury previously announced, small-, veteran-, minority-, and women-owned businesses will continue have the opportunity to partner with selected Legacy Securities PPIP fund managers following pre-qualification.

How did Treasury develop conflict of interest rules for the Legacy Securities PPIP?

Treasury's conflict of interest rules are the product of a rigorous and thorough development process that included extensive interaction with the staff of the Special Inspector General for the Troubled Asset Relief Program ("SIGTARP"), as well as with prospective Legacy Securities PPIP fund managers and the compliance professionals at the Federal Reserve Bank of New York ("FRBNY").
Set forth below is a summary of the process Treasury followed to investigate and mitigate actual and potential conflicts of interests that could affect a Legacy Securities Public-Private Investment Fund ("PPIF"). This process was conducted in connection with the evaluation of Legacy Securities PPIP fund manager applicants. Treasury worked closely with the SIGTARP in this process, which included the following steps:

  • Treasury required applicants to identify all conflicts of interest and how they would adopt to avoid or mitigate those conflicts in its publicly-released application for prospective Legacy Securities PPIP fund managers;

  • Treasury assessed each potential Legacy Securities PPIP fund manager's response for thoroughness (noting any deficiencies) and identified best practices with respect to governance and conflicts mitigation controls;

  • For those applicants selected as finalists, Treasury developed extensive legal and compliance diligence questionnaires that addressed detailed questions regarding governance and conflicts of interest issues, including:

  • Internal audit methodology, accounting policies/procedures and internal controls;

  • Mechanisms in place to identify, track, eliminate, mitigate, and monitor organizational and personal conflicts of interest;

  • Policies and procedures regarding affiliates, "round-tripping," valuation, trade allocations and proper handling of material non-public / sensitive information;

  • Responsibilities, authorities and independence of the Chief Compliance Officer; and

  • Other governance and management policies and procedures.
    • Treasury evaluated the responses of each finalist for thoughtfulness, feasibility and completeness and benchmarked these responses across several key compliance and conflicts related metrics;

    • Treasury then compiled subsequent legal, governance and conflicts of interest questions for each finalist, as necessary; and

    • Treasury discussed several key questions with finalists during in-person presentations made to Treasury. A representative from SIGTARP was invited to attend and observe and was present at most of these meetings.

After completion of the evaluation process, Treasury held numerous discussions focused specifically on conflict of interest issues with representatives from potential Legacy Securities PPIP fund managers; the SIGTARP team; and FRBNY staff, including FRBNY's Chief Compliance Officer, several professionals in its compliance and risk departments, and several individuals responsible for administering various governance-related portions of FRBNY's recovery programs.

This process resulted in the development of conflicts of interest standards and procedures that Treasury believes will ensure that the Legacy Securities PPIP can attract private capital and investment expertise to markets that have been substantially frozen for many months and protect taxpayers' interests at the same time.

How much time will pre-qualified Legacy Securities PPIP fund managers have to raise capital?

Each pre-qualified Legacy Securities PPIP fund manager will have up to 12 weeks to raise at least $500 million of capital from private sector investors for the PPIF. The equity capital raised from private sector investors will be matched by Treasury (up to certain limits). Each pre-qualified Legacy Securities PPIP fund manager will also invest a minimum of $20 million of firm capital in the PPIF. Upon raising this private sector capital, pre-qualified Legacy Securities PPIP fund managers can begin purchasing Eligible Assets.

Will retail investors be able to invest in PPIFs?

Treasury believes that appropriate retail participation (both indirectly through public pension fund investors and directly through individual investors) would enhance the Legacy Securities PPIP primarily through increased capital availability to purchase legacy assets which will help to increase liquidity and functioning of markets for these securities. Treasury has encouraged fund managers to propose structures that enable retail investors to participate in the Legacy Securities PPIP. Any such participation must be structured to comply with applicable securities laws and requires approval by the Securities and Exchange Commission.

Are foreign institutions eligible to participate in the Legacy Securities PPIP?

The goal of the Legacy Securities PPIP is to improve the health of financial institutions through removal of legacy assets from their balance sheets and by helping to increase the liquidity and functioning of markets for these securities. In order to achieve this goal, Treasury seeks broad participation in the Legacy Securities PPIP from both U.S. and foreign institutions. Set forth below are eligibility requirements for sellers of Eligible Assets to a PPIF, Legacy Securities PPIP fund managers and passive private PPIF investors:

  • Sellers of Eligible Assets to a PPIF: Eligible Assets may be purchased solely from financial institutions from which the Secretary of the Treasury may purchase troubled assets pursuant to Section 101(a)(1) of the EESA. Generally, sellers of Eligible Assets must be established and regulated in the U.S. (including territories or possessions of the U.S.) and have significant operations in the U.S. Any central bank of, or institution owned by a foreign government generally cannot be a seller of Eligible Assets. However if foreign government ownership of otherwise Eligible Assets results from extending financing to financial institutions that then failed or defaulted on such financing or from other prudential action that results in government ownership of a financial institution, such assets remain eligible for sale to a PPIF.

  • Legacy Securities PPIP Fund Managers: Legacy Securities PPIP fund managers must be headquartered in the U.S., but its ultimate parent company need not be headquartered in the U.S. For purposes of this criteria, "headquartered" means the Legacy Securities PPIP fund manager is established, licensed, and maintains a commercial presence in the U.S.

  • Passive Private PPIF Investors: Treasury seeks broad investor participation from both U.S. and foreign investors in the Legacy Securities PPIP to maximize the program's impact on the liquidity and functioning of markets for legacy securities. As such, there is no limitation on foreign investor participation. However, any private investor in a PPIF will be subject to a maximum investment of 9.9% of the PPIF.

 

What are the terms of Treasury's equity and debt investments in a PPIF?

Treasury has negotiated equity and debt term sheets with each pre-qualified Legacy Securities PPIP fund manager. Term sheets for Treasury's equity and debt investments in the PPIFs can be found at http://www.financialstability.gov.

How will Legacy Securities PPIP interact with the Making Home Affordable Program?

Subject to its analysis and judgment and the overall objective of maximizing the value of the PPIF's investments and the Legacy Securities PPIP fund manager's fiduciary duties, Legacy Securities PPIP fund managers that acquire interests in securities backed by residential mortgage loans in the PPIF have agreed (i) to consent, on behalf of the PPIF, to reasonable requests from servicers or trustees for approval to participate in Treasury's Making Home Affordable Program ("Making Home Affordable"), or for approval to implement other reasonable loss mitigation measures (including, but not limited to, term extensions, rate reductions, principal write downs, or removal of caps on the percentage of loans that may be modified within the securitization structure) and (ii) where the PPIF acquires 100% of the residential mortgage backed securities that are backed by a particular pool of residential mortgage loans, to instruct the servicer or trustee of such securities, if such servicer or trustee is participating in Making Home Affordable, to include such pool of residential mortgage loans in Making Home Affordable. The General Partner shall only be required to so consent, or instruct (as applicable) if it receives reasonably requested information from the servicer or the trustee (as applicable) and access to appropriate individuals at the servicer or the trustee (as applicable) which allow the General Partner to make an independent analysis that the consent or instruction (as applicable) is consistent with the General Partner's duties to the partnership. For the avoidance of doubt, PPIFs are eligible to receive their share of any standard investor subsidies payable to them under Making Home Affordable and Treasury's Home Affordable Modification Program.

Small Business and Community Lending Initiatives

Please note: The SBA 7(a) Securities Purchase Program is now closed. The following FAQs are provided for historical purposes only.

Will pool assemblers be required to issue warrants or other financial instruments to Treasury in connection with   the sale of SBA Pooled Certificates?

In connection with any sale, the pool assembler shall issue to Treasury Senior Securities of the pool assembler who actually made the sale and not any parent entity.  If, however, the pool assembler is a publicly traded company, then such pool assembler shall issue warrants for the common stock of such pool assembler.  For the avoidance of doubt, a participating pool assembler that is not a publicly traded company shall issue Senior Securities even if any parent entity is a publicly traded institution.

When a pool assembler issues Senior Securities in connection with any sale of SBA Pooled Certificates, can the pool assembler immediately redeem the Senior Securities concurrent with the settlement of the SBA Pooled Certificates?

Yes.  A pool assembler may immediately redeem the Senior Securities concurrently with the settlement of the SBA Pooled Certificates.

How do the requirements of the Interim Final Rule regarding Executive Compensation and Corporate Governance apply with respect to an obligation that arises and is extinguished on the same day?

With respect to an obligation that arises and is extinguished on the same day (for example, if a senior debt instrument issued in satisfaction of section 113(d) of EESA is extinguished immediately upon the closing of the transaction), a TARP recipient is treated as having received financial assistance in the form of an obligation to the Federal government, but is treated as having no TARP period and a period during which the obligation was outstanding -for zero days. Thus, the requirements of the Interim Final Rule that apply only during the TARP period, or the period during which an obligation remains outstanding, would not apply to the TARP recipient.

Can the terms of the Master Purchase Agreement be amended?

The terms of the Master Purchase Agreement can only be amended upon written agreement of each party.  However, Treasury may unilaterally amend the agreement, excluding outstanding transactions, to the extent required to comply with changes in applicable federal statutes.  Nonetheless, regardless of any subsequent amendments either party to the agreement may terminate the agreement upon written notice to the other party.  Additionally, execution of the Master Purchase Agreement does not commit the pool assembler to consummate any sales to Treasury.

Does executing the Master Purchase Agreement commit a pool assembler to make sales to Treasury?

No.  Execution of the Master Purchase Agreement does not commit the pool assembler to sell SBA Pooled Certificates to Treasury.

How can interested parties apply to participate in the Small Business and Community Lending Initiative?

The interested parties should submit must their interests to:
U.S. DEPARTMENT OF THE TREASURY
Office of Financial Stability: Small Business and Community Lending Initiative
1500 PENNSYLVANIA AVENUE NW
WASHINGTON, DC 20220
Phone Number: (202) 927-8724
E-mail Address: TARP_SBA_BUSINESS@do.treas.gov

How will the public know when a Pool Assembler and Treasury have entered into a trade for the SBA 7(a) security purchase program?

Information on the Small Business and Community Lending Initiative is made available online and updated regularly in the TARP Transactions Reports.

 

What are some helpful links for additional information?

OFS main website: http://www.financialstability.gov/

Specific details related to the Small Business and Community Lending Initiative: http://www.financialstability.gov/roadtostability/smallbusinesscommunityinitiative.html

Various contracts (For pool assemblers see "Small Business and Community Lending Initiative"): http://www.financialstability.gov/impact/contracts_list.htm

Term Asset-Backed Securities Loan Facility (TALF)

Please note: The TALF program closed to new lending in June 2010. These FAQs are provided for historical purposes only.

Why is the Federal Reserve establishing the TALF?

The asset-backed securities (ABS) market has been under strain for some months. This strain accelerated in the third quarter of 2008 and the market came to a near-complete halt in October. At the same time, interest rate spreads on AAA-rated tranches of ABS rose to levels well outside the range of historical experience, reflecting unusually high risk premiums. The ABS markets historically have funded a substantial share of consumer credit and U.S. Small Business Administration (SBA)-guaranteed small business loans. Continued disruption of these markets could significantly limit the availability of credit to households and small businesses and thereby contribute to further weakening of U.S. economic activity. The TALF is designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and small business ABS at more normal interest rate spreads.

How will the TALF work?

Under the TALF, the Federal Reserve Bank of New York (FRBNY) will provide non-recourse funding to any eligible borrower owning eligible collateral. On a fixed day each month, borrowers will be able to request one or more three-year TALF loans. Loan proceeds will be disbursed to the borrower, contingent on receipt by the FRBNY's custodian bank (custodian) of the eligible collateral, an administrative fee, and margin, if applicable. As the loan is non-recourse, if the borrower does not repay the loan, the FRBNY will enforce its rights in the collateral and sell the collateral to a special purpose vehicle (SPV) established specifically for the purpose of managing such assets. The FRBNY has published a Master Loan and Security Agreement (MLSA), which provides further details on the terms that will apply to borrowings under the TALF. The TALF loan is non-recourse except for breaches of representations, warranties and covenants, as further specified in the MLSA.

 

Eligible Borrowers

Who may borrow under the TALF?

Any U.S. company that owns eligible collateral may borrow from the TALF provided the company maintains an account relationship with a primary dealer. An entity is a U.S. company if it is (i) a business entity or institution that is organized under the laws of the United States or a political subdivision or territory thereof (U.S.-organized) and conducts significant operations or activities in the United States (regardless of whether any such an entity has a parent company that is not U.S.-organized), including any U.S.-organized subsidiary of such an entity; (ii) a U.S. branch or agency of a foreign bank (other than a foreign central bank) that maintains reserves with a Federal Reserve Bank; or (iii) an investment fund that is U.S.-organized and managed by an investment manager that has its principal place of business in the United States. Notwithstanding the foregoing, a U.S. company excludes any entity that is controlled by a foreign government or is managed by an investment manager controlled by a foreign government.

May a U.S. subsidiary of a foreign entity borrow from the TALF?

A U.S.-organized operating subsidiary of a foreign entity may borrow from the TALF so long as (i) the U.S. subsidiary conducts significant operations or activities in the United States and (ii) the U.S. subsidiary is not directly or indirectly controlled by a foreign government. A U.S.-organized investment fund subsidiary of a foreign entity may borrow from the TALF so long as (i) the U.S. subsidiary is managed by an investment manager that has its principal place of business in the United States; (ii) the U.S. subsidiary is not directly or indirectly controlled by a foreign government; and (iii) the investment manager of the U.S. subsidiary is not directly or indirectly controlled by a foreign government.

What is an "investment fund" for purposes of the TALF eligible borrower definition?

An investment fund is any type of pooled investment vehicle, including a hedge fund, a private equity fund, and a mutual fund, or a vehicle that primarily or exclusively invests in eligible collateral and borrows from the TALF.

What types of investment funds are eligible borrowers?

Investment funds that are organized in the United States and managed by an investment manager that has its principal place of business located in the United States are eligible borrowers for purposes of the TALF. However, any investment fund that is controlled by a foreign government or is managed by an investment manager controlled by a foreign government is not an eligible borrower for purposes of the TALF.

Example
InvestcoBermuda is a "master" investment fund organized in Bermuda that makes joint investments on behalf of InvestcoUS, a U.S.-organized investment fund, and InvestcoCayman, a Cayman Islands-organized investment fund. InvestcoBermuda, InvestcoUS, and InvestcoCayman are all managed by an investment manager with its principal place of business in the United States. Only InvestcoUS is an eligible borrower because it is the only investment fund that is U.S.-organized. If, however, InvestcoBermuda establishes Newco, a subsidiary investment fund, in the United States and hires its U.S.-based investment manager to manage Newco, Newco would be an eligible borrower for purposes of the TALF.

To be considered an eligible borrower, does an investment fund need to primarily or exclusively invest in TALF eligible ABS or can it be a multi-strategy fund?

An eligible investment fund includes funds that only invest in TALF eligible ABS and only borrow from the TALF, as well as funds that invest in a mix of TALF eligible ABS and other assets.

What is the definition of "controlled" for purposes of the eligible borrower definition?

For purposes of the eligible borrower definition, a foreign government controls a company if, among other things, the foreign government owns, controls, or holds with power to vote 25 percent or more of a class of voting securities of the company.

Can a newly formed investment fund borrow from the TALF?

Yes, so long as it satisfies all the eligible borrower requirements set forth above.

Eligible Collateral

What types of ABS are eligible collateral under the TALF?

Eligible collateral (eligible ABS) will include U.S. dollar-denominated cash (that is, not synthetic) ABS that have a credit rating in the highest long-term or short-term investment-grade rating category from two or more major nationally recognized statistical rating organizations (NRSROs) and do not have a credit rating below the highest investment-grade rating category from a major NRSRO. Eligible small business ABS also will include U.S. dollar-denominated cash ABS that are, or for which all of the underlying credit exposures are, fully guaranteed as to principal and interest by the full faith and credit of the U.S. government. –
All or substantially all of the credit exposures underlying eligible ABS must be exposures to U.S.-domiciled obligors. The underlying credit exposures of eligible ABS must be auto loans, student loans, credit card loans, or small business loans fully guaranteed as to principal and interest by the SBA. The set of permissible underlying credit exposures of eligible ABS may be expanded over time. The underlying credit exposures must not include exposures that are themselves cash or synthetic ABS. The average life for credit card or auto loan ABS cannot be greater than five years.

Eligible ABS must be cleared through the Depository Trust Company and, except for SBA Pool Certificates or Development Company Participation Certificates, must be issued on or after January 1, 2009. All or substantially all of the credit exposures underlying eligible auto loan ABS (except auto dealer floorplan ABS) must have been originated on or after October 1, 2007. All or substantially all of the credit exposures underlying eligible student loan ABS must have had a first disbursement date on or after May 1, 2007. SBA Pool Certificates and Development Company Participation Certificates must have been issued on or after January 1, 2008, regardless of the dates of the underlying loans or debentures. The SBA-guaranteed credit exposures underlying all other eligible small business ABS must have been originated on or after January 1, 2008. Eligible credit card and auto dealer floorplan ABS must be issued to refinance existing credit card and auto dealer floorplan ABS, respectively, maturing in 2009 and must be issued in amounts no greater than the amount of the maturing ABS.

Which rating agencies are considered major nationally recognized statistical rating organizations (NRSROs) for purposes of the TALF?

The major NRSROs for purposes of determining TALF-eligible ABS are Fitch Ratings, Moody's Investors Service, and Standard & Poor's. The FRBNY will periodically review its use of NRSROs, for the purpose of determining TALF-eligible ABS.

What level of assurance will be required from the sponsor's accountants that the ABS is TALF eligible?

An accounting firm retained by the sponsor must provide a certification indicating that the ABS is TALF eligible. The accounting firm must be a nationally recognized certified public accounting firm that is registered with the Public Company Accounting Oversight Board. The form of the certification is at http://www.ny.frb.org/markets/TALFAuditorAttestationForm.pdf .

What information must the issuer and sponsor include in the prospectus or other offering document of an ABS in order to represent that the ABS is eligible collateral for a TALF loan?

In addition to information required by applicable laws, the issuer and sponsor must ensure that the information included in a prospectus or other offering document of an ABS they represent as eligible collateral under the TALF includes a signed certification indicating, among other items, that (a) the ABS is TALF eligible, (b) an accounting firm retained by the sponsor has provided an accountant's report, in a form acceptable to the FRBNY, that the ABS is TALF eligible, and (c) the sponsor (or, if the sponsor is a special purpose vehicle, the sponsor's direct or indirect ultimate parent) has executed and delivered an undertaking to the FRBNY indemnifying it from any losses it may suffer if such certifications are untrue. Such Indemnity Undertaking shall be delivered to the FRBNY no later than four days prior to the TALF loan settlement date. The certification form is at: http://www.ny.frb.org/markets/Form_Certification_TALF_Eligibility.pdf

What entity is the "issuer" that must sign the Issuer Certification?

The "issuer" for purposes of the Issuer Certification, in both public and private offerings of TALF eligible ABS, will be the legal entity that issues the ABS.

What types of receivables are TALF eligible?

Auto-related receivables will include retail loans and leases relating to cars, light trucks, motorcycles and recreational vehicles (RVs), and will also include auto dealer floorplan loans. Commercial, government and rental fleet leases of cars, trucks and light trucks will not be eligible.

For TALF purposes, eligible credit card receivables include both consumer and corporate credit card receivables. Student loan receivables include federally guaranteed student loans (including consolidation loans) and private student loans. SBA loans include loans, debentures, or pools originated under the SBA's 7(a) and 504 programs, provided they are fully guaranteed as to principal and interest by the full faith and credit of the U.S. government and meet all other TALF eligibility requirements.

What does "all or substantially all" mean in the context of determining whether the credit exposures underlying an ABS meet the U.S.-domiciled obligors criteria?

"All or substantially all" in this context means 95 percent or more of the dollar amount of the credit exposures underlying the ABS.

What does "all or substantially all" mean in the context of determining whether the credit exposures underlying an ABS meet the date of origination criteria?

"All or substantially all" in this context means 85 percent or more of the dollar amount of the credit exposures underlying the ABS.

Is there a minimum or maximum maturity limit for ABS that can collateralize TALF loans?

There is no minimum limit. If an ABS's maturity is shorter than the three-year maturity of the TALF loan, the TALF loan will mature upon maturity of the ABS collateral for that loan. The average life for credit card or auto loan ABS cannot be greater than five years.

What happens if an ABS that was eligible for TALF financing is downgraded by an NRSRO?

Nothing happens to existing TALF loans secured by that ABS. However, the ABS may not be used as collateral for any new TALF loans until it regains its status as eligible collateral.

Why are there no loan origination date restrictions for credit card and dealer floorplan ABS?

Unlike auto, SBA and student loan ABS, which are backed by a fixed pool of loans, credit card and dealer floorplan ABS are backed by dynamic pools of receivables that constantly change as customers and vehicle dealerships draw on and repay their credit lines. The pools include both seasoned and recently originated receivables. Due to the quick turnover and revolving nature of the underlying pools, the refinancing of existing credit card and dealer floorplan ABS largely fund newly originated receivables, consistent with the policy goal of the TALF.

Are ABS that are rated in the highest investment grade rating category but are on review or watch for downgrade TALF eligible?

No, eligible ABS cannot be on review or watch for downgrade.

Are privately placed ABS eligible collateral for a TALF loan, provided they meet all of the eligibility requirements?

Yes.

Are AAA credit ratings achieved using a third-party guarantee applicable for TALF eligibility?

No, an eligible ABS must obtain the necessary highest investment grade ratings without the benefit of a third-party guarantee.

Does the requirement that eligible auto dealer floorplan and credit card ABS be issued to refinance existing ABS maturing in 2009 apply at the individual master trust level or at the issuer level?

The refinancing limitation applies at the issuer level rather than the individual trust level. For example, if an issuer has four master trusts with a total of $20 billion in ABS maturing in 2009, the maximum amount of TALF-eligible ABS the issuer could issue in 2009 is $20 billion; it may issue that $20 billion in ABS from one trust or from multiple trusts.

How are variable funding notes treated in the calculation of the amount of an issuer's credit card or auto dealer floorplan ABS maturing in 2009?

For TALF purposes, a VFN's maturity date is its commitment termination date and its amount is its maximum contractual principal balance.

For ABS with controlled amortization periods, what amount counts toward an issuer's limit?

For ABS in controlled amortization periods, only the amount that amortizes in 2009 counts toward the limit.

Do ABS in controlled accumulation periods with bullet maturities after 2009 count toward an issuer's limit?

No. For TALF purposes, ABS maturities are defined as dates on which principal payments are due.

Must a credit card or auto dealer floorplan ABS issuer issue eligible ABS concurrent with the maturation of the ABS the eligible ABS is refinancing?

No. Issuers may pre-fund their maturing ABS with eligible ABS up to three months in advance. Issuers also have the option to refinance ABS that matured in 2009 in bulk on any date up to December 31, 2009. Issuers may not, however, pre-fund ABS that mature in 2010 with eligible ABS.

How will the issuance limits on credit card ABS and auto dealer floorplan ABS be enforced?

Issuers of credit card ABS and auto dealer floorplan ABS must state in their prospectuses that the aggregate amount of eligible ABS they have issued does not exceed the amount of their 2009 ABS maturities. Issuers may issue ABS in excess of their 2009 maturities; however, these excess amounts will not be eligible collateral for TALF loans.

For ABS backed by SBA loans, are explicit credit ratings required?

U.S. dollar-denominated cash ABS backed by loans, debentures, or pools under the SBA's 7(a) and 504 programs will be eligible as long as all of the underlying credit exposures, or the ABS themselves, are fully guaranteed as to principal and interest by the full faith and credit of the U.S. government. These securities do not require an explicit credit rating.

Can a company that originates loans securitize them, acquire the AAA-rated tranche of the securitization, and finance it using the TALF?

No, eligible collateral for a particular borrower must not be backed by loans originated or securitized by the borrower or by an affiliate of the borrower.

How is "affiliate of the borrower" defined for purposes of determining eligible collateral?

An affiliate of a borrower means any company that controls, is controlled by, or is under common control with the borrower. For this purpose, a person or company controls a company if, among other things, it (1) owns, controls, or holds with power to vote 25 percent or more of a class of voting securities of the company; or (2) consolidates the company for financial reporting purposes.

May investors borrow against ABS they already own?

Yes, an investor may borrow against any eligible ABS. Eligible ABS must be issued on or after January 1, 2009, but need not be issued on the same day the investor borrows from the TALF. SBA Pool Certificates and Development Company Participation Certificates must have been issued on or after January 1, 2008.

Operational Mechanics

Please note: The TALF program closed to new lending in June 2010. These FAQs are provided for historical purposes only.

How does an entity participate in the TALF program?

An eligible borrower must be a customer of a primary dealer and must have executed a customer agreement authorizing the primary dealer, among other things, to execute the master loan and security agreement (MLSA) as agent for the borrower and to perform all actions required on their behalf. The MLSA will provide further details on the requirements that will apply to the entities seeking to borrow from the FRBNY under the TALF.

What is the TALF process from subscription to settlement?

Prior to each subscription date, each primary dealer will collect from prospective eligible borrowers the amount of each borrower's loan request(s), the interest rate format corresponding to the type of collateral pledged (that is, fixed or floating), the CUSIPs of the ABS the borrower expects to deliver and pledge to the FRBNY, and the prospectuses and/or offering documents of the ABS expected to be pledged. On the subscription date, each primary dealer will submit this information to the FRBNY's custodial agent for review and will also submit to the FRBNY the aggregate loans request amount for all its customers by rate type and asset class.
No fewer than two business days before the loan settlement date, the custodian will send a confirmation to the primary dealer listing each borrower's loan amount and the ABS expected to be delivered on the loan settlement date. The confirmation will also include the administrative fee and margin (the dollar amount of the haircut), if applicable, to be collected by the primary dealer and paid on the loan settlement date.

On the loan settlement date, the borrower or its agent will deliver against payment the ABS collateral, administrative fee and applicable margin to the FRBNY's settlement account at the custodian.

How will the process work if a new ABS issue closes on the same day as the TALF loan settlement date?

The borrower of a TALF loan must identify the counterparty expected to deliver the new issue ABS to be pledged as collateral at the time of the loan subscription. When the borrower's primary dealer who submitted the loan request receives the confirmation of the loan and its details from the custodian two days prior to the loan settlement date, the primary dealer can extract the pertinent information to generate and forward a trade confirmation to the borrower's delivering counterparty. The delivering counterparty can be the lead underwriter or co-manager of the new ABS security issue, other syndicate member, or the primary dealer agent of the borrower. The borrower must always remit the margin to their agent primary dealer who submitted the loan request. If the primary dealer is not the delivering counterparty, the primary dealer will forward the margin to FRBNY's cash custody account at the custodian in order for the issuer to receive the full purchase price of the security issue. The delivering counterparty will deliver the ABS collateral to FRBNY's custodian against payment. Upon settlement, the custodian will reflect the loan and collateral pledged on its books.

The MLSA requires the primary dealer to deliver, among other things, a sales confirmation in connection with collateral that is newly issued. What form of sales confirmation is acceptable?

A Rule 10b-10 confirmation is satisfactory. Other written sales confirmations, including e-mail confirmations that contain the required pricing information and are customarily provided by many broker-dealers prior to mailing of a Rule 10b-10 confirmation, will also be acceptable.

Do issuers need to publish a final prospectus by the subscription date, or can borrowers subscribe for a loan based on the "red" prospectus, and deliver the final prospectus at a later date?

On the subscription date, the primary dealer must provide the custodian with the CUSIP numbers and prospectuses/offering documents of all collateral expected to be pledged against the TALF loans. If the CUSIP number corresponds to a new issuance, the prospectus/offering documents submitted on subscription date may be preliminary, but the final prospectus/offering documents (including the corresponding accountant's report) must be provided to the custodian no later than four days prior to the TALF loan settlement date.

Must an eligible borrower own the ABS it plans to pledge as collateral for a TALF loan at the time it subscribes for the loan?

An eligible borrower need not own the ABS on the subscription date. However, in order for the primary dealer and custodian to perform their due diligence, the borrower must inform the primary dealer by the subscription date of the CUSIP of the ABS it intends to deliver as collateral on the loan settlement date. If the borrower is allocated less than expected of the new ABS issue, the borrower must inform FRBNY and its custodian, through its primary dealer, no less than four days prior to the loan settlement date so that an adjustment may be made to the margin and administrative fee prior to the loan settlement date.

Is there a penalty if an investor fails to provide a security on settlement date?

No, although the FRBNY expects the ABS collateral identified by CUSIP in the confirmation sent to the primary dealer by the custodian to be delivered on the loan settlement date. Should any portion of expected ABS collateral not be received on settlement date, that portion of the loan will be cancelled and the administrative fee will not be refunded.

When will the TALF become operational?

The initial TALF subscription date will be Tuesday, March 17, 2009 and the loan settlement date will be Wednesday, March 25, 2009. Going forward monthly subscriptions will be scheduled on the first Tuesday of every month.

What will be the length of time between the announcement of terms and subscription date?


Based on experience with the initial subscription, the Federal Reserve will review the term announcement and loan settlement timeframes and announce a more detailed future TALF schedule.

Over what time period will the TALF operate?

The facility will cease making loans on December 31, 2009, unless the Board of Governors extends the facility.

Will there be a limit on how many loans a borrower may request?

No, an eligible borrower may request an unlimited number of loans at each monthly subscription.

May borrowers request loans through multiple primary dealers?

Yes. If a borrower requests loans through multiple primary dealers, it must deliver the collateral for each loan through the respective primary dealer, unless the collateral is a new issuance delivered by the underwriter/other syndicate desk.

What is the minimum TALF loan amount?

A borrower must request a minimum of $10 million for each loan.

Is there a maximum TALF loan amount?

No.

What is the maturity of a TALF loan?

TALF loans have a three-year maturity.

If the ABS matures in four years and the TALF loan matures in three years, is the borrower responsible for selling the collateral and repaying the loan at the end of the third year?

At the end of the three-year period the loan must be repaid. The borrower may (1) repay the loan, at which time the FRBNY will release the collateral, or (2) arrange for the sale of the collateral and instruct the FRBNY to deliver the ABS to the counterparty against payment. The settlement amount of the sales transaction must either be equal to, or greater than, the loan amount outstanding, or the borrower must make up any shortfall to repay the loan in full, including accrued interest, before the FRBNY will deliver the ABS. Any excess sale proceeds will be remitted back to the borrower. At maturity, a borrower may surrender the collateral to the FRBNY, in lieu of repaying the outstanding principal or interest on a TALF loan, by delivering a Collateral Surrender and Acceptance Notice with respect to such loan by the maturity date.

May a borrower pledge more than one security as collateral for a single loan?

Yes, a borrower may pledge any combination of eligible ABS as collateral for a single TALF loan. However, a fixed rate ABS must be pledged against a fixed rate loan and a floating rate ABS against a floating rate loan.

May a borrower revise its original loan request?

The borrower's original loan request, submitted via its primary dealer on the subscription date, may later be adjusted only if the borrower is allocated less than the expected amount of a new ABS issue. A borrower may not adjust its loan request to obtain a larger amount of TALF loans than originally requested.

Will prepayment of the loan be permitted?


Yes. A borrower may prepay a TALF loan in full or in part at any time. If a borrower makes a partial prepayment, collateral securing its loan will be released on a pro-rata basis, taking into consideration minimum ABS denominations.

Are there any penalties associated with prepayment of a TALF loan?

No.

May a borrower substitute collateral during the term of its loan?

No, a borrower may not substitute collateral, unless the collateral is discovered to fail any of the eligible collateral criteria in effect at the time when the loan was made. In this case the FRBNY will require the borrower to replace the collateral or repay the loan.

If the ABS collateral supporting a TALF loan is sold, can the TALF loan be transferred with that collateral?

A borrower may assign all of its obligations with respect to a TALF loan to another eligible borrower with the prior consent of the FRBNY. The FRBNY will assess the eligibility of the assignee as a borrower at the time of the transfer and confirm that the assignee has executed all the requisite documentation for the facility.

No assignments will be consented to after the termination date for making new loans, which is December 31, 2009 unless extended by the Board.

How are principal payments on eligible collateral allocated between the borrower and repayment of principal on the TALF loan?

Any remittance of principal on eligible collateral must be used immediately to reduce the principal amount of the TALF loan in proportion to the original loan-to-value ratio. For example, if the original loan-to-value ratio was 90 percent, 90 percent of any remittance of principal on the ABS must immediately be repaid to the FRBNY.

If a TALF-financed ABS incurs a principal loss, would the loss be allocated between the borrower's haircut and the TALF loan?

No. The borrower is responsible for all interest and principal payments on a TALF loan. If the borrower does not make these payments, the FRBNY will enforce its rights to the collateral and the borrower will forfeit its haircut amount.

What happens if a borrower does not repay its loan?

In lieu of repaying the outstanding principal or interest on a TALF loan, a borrower may surrender the collateral to the FRBNY by delivering a Collateral Surrender and Acceptance Notice with respect to the TALF loan. If a borrower fails to deliver the Collateral Surrender and Acceptance Notice by the maturity date, the FRBNY may exercise recourse rights against the borrower and require it to repay the TALF loan.

Is there a grace period associated with a borrower's obligation to pay interest on a TALF loan?

Yes, a borrower has a grace period of 30 days during which to pay interest on a TALF loan if the net interest on the pledged ABS is not sufficient to cover the interest payment associated with the loan. After the grace period, if the loan remains delinquent, the FRBNY will enforce its rights to the TALF loan collateral.

When a borrower elects to surrender the collateral in satisfaction of a loan, can it do so by surrendering specific collateral or is the entire pool of collateral surrendered?


All of the ABS that secure an individual loan must be surrendered. A borrower that desires to effect a collateral surrender must make a request through its primary dealer.

Will there be a separate facility for each ABS asset class?

No. Borrowers with eligible ABS of all asset types will receive loans from the same facility.

What fees are associated with the TALF?

On each loan's settlement date, the borrower must pay to the FRBNY's settlement account an administrative fee equal to 5 basis points of the loan amount, which will cover the FRBNY's fees associated with the facility.

Haircuts and Rates

To what values will the haircuts be applied to determine the maximum loan amount?
Under the TALF, the FRBNY will lend to each borrower an amount equal to the lesser of the par or market value of the pledged ABS minus a haircut. Alternatively, when the pledged ABS has a market value above par, the FRBNY will lend an amount equal to the market value -- subject to a cap of 110 percent of par value -- minus a haircut, and the borrower will periodically prepay a portion of the loan. The prepayments will be calculated to adjust for the expected reversion of market value toward par value as the ABS matures.1

What is the initial haircut schedule for each asset type?

 


Initial collateral haircuts are as follows: ABS Average Life (years)

Sector

Subsector

0-1

>1-2

>2-3

>3-4

>4-5

>5-6

>6-7

Auto

Prime retail lease

10%

11%

12%

13%

14%

Auto

Prime retail loan

6%

7%

8%

9%

10%

Auto

Subprime retail loan

9%

10%

11%

12%

13%

Auto

Floorplan

12%

13%

14%

15%

16%

Auto

RV/motorcycle

7%

8%

9%

10%

11%

Credit Card

Prime

5%

5%

6%

7%

8%

Credit Card

Subprime

6%

7%

8%

9%

10%

Student Loan

Private

8%

9%

10%

11%

12%

13%

14%

Student Loan

Gov't guaranteed

5%

5%

5%

5%

5%

6%

6%

Small Business

SBA loans

5%

5%

5%

5%

5%

6%

6%

1 The amount of prepayment in dollars is determined by the following formula:
Par*(1-h)*(min(Price,1.10*Par)/Par-1)/(b*WAL)
Par is the par value of the bond.
h is the haircut from the above table corresponding to the expected life and asset class of the bond.
Price is the price of the bond.
WAL is the weighted average life of the bond measured in years and calculated at the prepayment assumption used to compute expected life above. If the WAL is not available, half of the weighted average life to maturity (WALM) may be used as an approximation.
b is equal to 12, 4, or 2 for securities with a remittance frequency of monthly, quarterly, or semi-annually, respectively.

For ABS benefitting from a substantial government guarantee with average lives beyond five years, haircuts will increase by one percentage point for every two additional years of average life beyond five years. For all other ABS with average lives beyond five years, haircuts will increase by one percentage point for each additional year of average life beyond five years.

How is average life defined for the purposes of the haircut table?

For ABS with bullet maturities (credit cards, auto dealer floorplans), average life is determined by the expected principal payment date. For amortizing ABS (auto retail loans and leases, student loans and SBA loans), average life is defined as the weighted average life to maturity based on the prepayment assumptions and market conventions listed below.

Sector

Subsector

Prepayment Assumption

Auto

Prime auto retail lease

75% of prepayment curve

Auto

Prime auto retail loan

1.3% APS

Auto

Subprime retail loan

1.5% APS

Auto

Motorcycle

1.5% APS

Auto

RV

18% CPR

Student Loan

Student Loan Private

4% CPR

Student Loan

Student Loan FFELP

6% CPR

Student Loan Consolidation

50% of CLR curve

Small Business

SBA 7a

14% CPR

Small Business

SBA 504

5% CPR

CPR (Conditional Payment Rate) represents the proportion of the principal of a pool of loans that is assumed to be paid off prematurely in each period.

APS (Absolute Prepayment Speed) represents the percentage of the original number of loans that prepay during a given period.

Where will an ABS security's average life be published?

The issuer is expected to publish the security's average life in the prospectus. For amortizing assets the issuer should calculate the weighted average life to maturity based on the above prepayment assumptions and make a representation in the prospectus that the weighted average life to maturity for each AAA-rated tranche was calculated in accordance with the TALF prepayment assumptions. In addition, issuers are encouraged to base weighted average life to maturity calculations on a loan-by-loan analysis. However, if the analysis is based on representative pools, the pools must fairly and accurately model the actual collateral characteristics underlying TALF-eligible securities. Issuers should understand that such representations of weighted average life to maturity in the prospectus are material to the FRBNY's determination of the haircuts for TALF loans and the representation as to accuracy of the offering document contained in the issuer certification would be breached if the weighted average life calculations incorrectly apply the prepayment assumptions listed above or are based on assumptions that are not representative of the actual collateral characteristics underlying TALF-eligible securities.

How are subprime versus prime defined for auto loan and credit card ABS?

Auto loan and lease ABS are considered prime if the weighted average FICO score is 680 or greater. Those receivables without a FICO score are assigned a 0 for this calculation. For auto loan deals where a weighted average FICO score is not disclosed, the subprime haircut schedule will apply.

Credit card ABS are considered prime if at least 70 percent or more of the receivables have a FICO score greater than 660. FICO scores must reflect performance data within the last 120 days. For credit card trusts where a weighted average FICO score is not disclosed, the subprime haircut schedule will apply.

Will the haircuts be the same for all borrowers for the same assets?

Haircuts will vary across asset classes and securities' average lives, but not across borrowers.

What spreads will be offered on the TALF loans on the first subscription date?

Borrowers will be able to choose either a fixed or a floating rate on each TALF loan. In general, the interest rate on floating-rate loans will be 100 basis points over 1-month LIBOR and the interest rate on fixed-rate loans will be 100 basis points over the three-year LIBOR swap rate.

However, the interest rate spread on TALF loans backed by collateral benefitting from a government guarantee -- that is, FFELP ABS, SBA 7(a) ABS, and SBA 504 ABS -- will be 50 basis points. That spread is over the federal funds target rate (or the top of the federal funds target range) plus 25 basis points for SBA 7(a) ABS, over one-month LIBOR for FFELP ABS and over the three-year LIBOR swap rate for SBA 504 ABS. Interest rates will be set on the subscription date.

Sector

Subsector

Fixed

Floating

Auto

3-year LIBOR swap rate + 100 bps

1-month LIBOR + 100 bps

Credit Card

3-year LIBOR swap rate + 100 bps

1-month LIBOR + 100 bps

Student Loan

Private

NA

1-month LIBOR + 100 bps

Student Loan

Gov't guaranteed

NA

1-month LIBOR + 50 bps

Small Business

SBA loans 7(a)

NA

Fed Funds Target + 75 bps

Small Business

SBA loans 504

3-year LIBOR swap rate + 50 bps

NA

How are the interest rates on TALF loans determined?

The interest rates on TALF loans are set with a view to providing borrowers an incentive to purchase newly issued eligible ABS at yield spreads higher than in more normal market conditions but lower than in the highly illiquid market conditions that have prevailed during the recent credit market turmoil.

Will the interest rate spread and haircuts change from month to month?

The Federal Reserve will periodically review and, if appropriate, adjust the TALF interest rate spread and haircuts for new loans, consistent with the policy objectives of the TALF.

Why are the spreads on the loans backed by collateral benefitting from government guarantees lower?

The lower credit risk of these ABS merits a lower risk premium on the TALF loans.

Additional Information Regarding the TALF

What is the primary dealer's role?

The MLSA will specify a primary dealer's roles and responsibilities, including the agency functions to be performed on behalf of its customers. Among other duties, the primary dealer shall:
Collect from its customers the amount of each borrower's loan requests, the CUSIPs of the ABS the borrower expects to deliver and pledge against the loan, and the prospectuses and/or offering documents of the ABS expected to be pledged;
Submit aggregate loan request amounts on behalf of its customers in the form and manner specified by the FRBNY;
On the subscription date, submit a file to the custodian containing a detailed breakdown of the loan requests, which will include the identity of the individual borrowers, the amount of each borrower's loan request, and the material information collected above;
Work with its customers to resolve any discrepancies identified by the custodian;
Collect from its customers and deliver to the custodian the administrative fee and any applicable margin required to be delivered to the custodian on the loan settlement date;
Periodically receive from the custodian the portion of the distributions on the collateral that are to be paid to its customers and disburse such payments in accordance with the instruction of its customers and provide any applicable tax report to its customers; and
Receive, or forward, notices on behalf of its customers.
In addition, a primary dealer will be required to apply its internal customer identification program and due diligence procedures ("Know Your Customer" program) to each borrower and represent that each borrower is eligible. A primary dealer will be required to provide the FRBNY with information sufficient to describe the dealer's customer risk assessment methodology. All primary dealers planning to participate in the TALF must contact the FRBNY Compliance Function at talf.compliance@ny.frb.org for further guidance.

What are the tax reporting and withholding responsibilities of primary dealers that participate in the TALF?

The primary dealers are responsible for managing any tax withholding and reporting obligations for their customers. Primary dealers should consult with tax counsel to understand tax implications and requirements of primary dealers for the specific tasks performed on behalf of customers in connection with TALF.

What information will the primary dealer receive from the custodian to assist in reconciling and distributing aggregate monthly interest payments to investors?

With each payment distribution, the primary dealer will receive information regarding the gross principal and interest amount paid by the ABS collateral, as well as the principal and interest amount to be remitted to the borrower. Should an interest deficiency exist, the net interest and/or principal will be used to offset that deficiency, in which case the primary dealer will be informed.

Are there any bankruptcy protections for the borrower if the primary dealer should declare bankruptcy following its receipt of principal and interest from the custodian, but prior to disbursement to the borrower?


Once funds or collateral are transferred by the custodian to a primary dealer or at the direction of the primary dealer, neither the custodian/administrator nor the FRBNY has any obligation to account for whether the funds or collateral are transferred to the borrower.

Will the Securities and Exchange Commission (SEC) be providing an exemption from Section 11(d)(1) of the Securities Exchange Act of 1934 to permit primary dealers to arrange TALF financing from the FRBNY on new issues for which they may be underwriters?

The SEC has granted a limited exemption from the prohibition on arranging certain credit under Section 11(d)(1) for those primary dealers arranging TALF financing from the FRBNY on new issues of non-exempted securities where such dealers may have been within the preceding 30 days a "member of a selling syndicate or group" in respect of the distribution of the new issue. This exemption is limited to the arranging prohibitions of Section 11(d)(1), and does not relieve primary dealers from any applicable limitations on direct extensions of credit by them. Please refer to the SEC's letter to the FRBNY on this matter, which is available at http://www.sec.gov/divisions/marketreg/mr-noaction/2009/frbny021709.pdf.

May a primary dealer that underwrites or sells an issuance and acts as an agent to arrange financing for a TALF borrower enter into transactions with or on behalf of the borrower intended to insure, in whole or in part, against losses on securities purchased with TALF financing?

In Appendix I to the MLSA, each primary dealer will agree that it and its affiliates will not acquire collateral from a borrower that it underwrites at a price designed to reduce or eliminate any loss that such borrower would realize on sale "or enter into any other agreement or consummate any other transaction intended to have the same effect." This contractual provision prohibits hedges since these hedges are "other agreements" or "other transactions" intended to protect the borrower against loss. As a result, in the circumstances described above, a primary dealer will not be permitted to enter into any transaction that is designed to hedge against losses specific to securities purchased with TALF financing. This prohibition extends to both direct hedges, such as credit default swaps, and correlative hedges, such as short-selling the ABX index. However, the prohibition does not extend to hedges on a borrower's broader portfolio, which may include securities purchased with TALF loans.

May an issuer or sponsor enter into a transaction with or on behalf of the borrower intended to insure, in whole or in part, against losses on TALF collateral securitized by the issuer or sponsor?

To ensure an independent assessment of risk by investors, issuers and sponsors and their affiliates are prohibited from entering into a transaction designed to hedge against an investor's losses on ABS purchased by the investor with TALF financing and securitized by such issuer or sponsor.

What executive compensation restrictions will apply to sponsors, underwriters, and borrowers under the TALF program?

The goal of the TALF program is to encourage securitization of privately originated loans in important asset classes to consumers and small businesses. The TALF provides support to ABS sponsors, who are providing credit to consumers and businesses, and to ABS investors, who are bringing new capital to this frozen market. The success of the program is important to halting the destructive credit cycle and to restarting credit formation.

Executive compensation restrictions are targeted towards ensuring that executives of institutions that receive government support are not unjustly enriched at the taxpayers' expense. Given the goals of the TALF and the desire to encourage market participants to stimulate credit formation and utilize the facility, the restrictions will not be applied to TALF sponsors, underwriters, and borrowers as a result of their participation in the TALF.

What is the legal basis for the TALF?

The TALF is authorized under section 13(3) of the Federal Reserve Act, which permits the Federal Reserve Board, in unusual and exigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations that are unable to obtain adequate credit accommodations.

What is Treasury's role in the TALF?

The U.S. Treasury's Troubled Assets Relief Program (TARP) will purchase $20 billion of subordinated debt in an SPV created by the FRBNY. The SPV will purchase and manage any assets received by the FRBNY in connection with any TALF loans. Residual returns from the SPV will be shared between the FRBNY and the U.S. Treasury.


How will the Federal Reserve report lending under the TALF?

Balance sheet items related to the TALF will be reported on the H.4.1 weekly statistical release entitled "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks." There will be an explanatory cover note on the release when items are added. In addition, the value of the collateral pledged to the FRBNY to secure TALF loans will be reported on the Federal Reserve Board's website at http://www.federalreserve.gov/monetarypolicy

What measures have been put in place to protect the TALF against credit losses and fraud?

The Federal Reserve and the Treasury have structured the TALF to minimize credit risk for the U.S. government to the greatest extent possible, consistent with achieving the program's purpose of encouraging lending to consumers and small businesses. Examples of the structural features of the TALF that minimize credit risk include the following: (i) investors are required to supply risk capital in the form of haircuts; (ii) the TALF haircut methodology is risk sensitive across asset class and maturity; and (iii) the TALF only accepts collateral that has received two credit ratings in the highest investment-grade rating category or that is fully U.S. government-guaranteed.

The FRBNY also has designed a number of measures to discourage fraudulent activity associated with the TALF. The FRBNY has established a compliance framework that includes a borrower acceptance standard, an assurance program related to borrower eligibility requirements, on-site inspection rights over borrowers, and the right to reject a borrower for any reason. The FRBNY has also retained the right to review all loan files held by the custodian pertaining to each borrower. Furthermore, the FRBNY is establishing a telephone and internet-based hotline for reporting of fraudulent conduct or activity associated with the TALF.

In addition, an ABS issuer must provide a certification in connection with the prospectus that the ABS is TALF eligible, that a nationally recognized certified independent accounting firm has certified that the ABS is TALF eligible, and that the issuer has not made any untrue statements of material fact to an NRSRO to obtain the credit rating of the ABS. If the collateral provided for a TALF loan or a borrower who has participated in the program is found to be ineligible, the non-recourse feature of the loan becomes inapplicable. If the collateral is ineligible, the borrower must either replace the collateral with other eligible collateral or repay the loan. If the borrower is ineligible, the borrower must repay the loan. Moreover, as indicated above, to assist the FRBNY in screening borrowers, primary dealers are required to apply their internal customer identification program and due diligence procedures to each borrower and escalate information relating to those borrowers assessed as high risk to the FRBNY.

Where should questions regarding the TALF be directed?

Questions should be directed to the FRBNY's Public Affairs department: 212-720-6130 or via email to TALF@ny.frb.org.

Housing FAQs sent to HPO for updating on 6-13-12

 

About Servicers

 

Who is my "servicer?" Is my servicer the same as my lender or investor?

Your loan servicer is the financial institution that collects your monthly mortgage payments and has responsibility for the management and accounting of your loan. It is possible that the owner of your mortgage also services it, however many loans are owned by groups of investors and these investors hire loan servicers to interact with homeowners on their behalf.  Many lenders also have the loan servicers handle all contact with homeowners.

 

Traditionally, banks used money deposited in customers' savings accounts to make loans.  They held the loans, earning the interest as homeowners repaid over time. Banks were thus limited in the number of loans they could make because they had to wait to make new ones until savings deposits grew or existing homeowners repaid their loans. Many families who wanted to own a home were unable to do so because there was not a steady ​supply of money for banks to lend.

 

Over time, banks started to turn loans into cash by pooling large groups of loans together to create mortgage backed securities that could be sold to investors such as pension funds and hedge funds.  The investors get the right to collect future payments and the bank gets cash that it can use to make more loans. Investors hire loan servicers to collect payments and interact with customers.

 

If you have questions about your loan, or you are behind on your payments, you should call your loan servicer at the number on your payment coupon or monthly mortgage statement.​

 

Is my servicer participating in HAMP?

All servicers for loans owned or guaranteed by Fannie Mae and Freddie Mac are required to participate. Additional servicers are strongly encouraged to participate. The list of servicer participants will be updated at www.MakingHomeAffordable.gov/get-assistance/contact-mortgage/.

 

What should I do if my servicer tells me that the investor is not participating in the Making Home Affordable Program?

Check to see if your servicer is listed on our servicer participant list at www.MakingHomeAffordable.gov/get-assistance/contact-mortgage/. Keep in mind that all servicers for loans owned or guaranteed by Fannie Mae and Freddie Mac are required to participate with respect to those loans. (See "How do I know if my loan is owned or has been guaranteed by Fannie Mae or Freddie Mac?")

 

If your servicer is on our participant list, or your mortgage is owned or guaranteed by Freddie Mac or Fannie Mae, call your servicer back and ask to speak to a supervisor. You may also contact a HUD-approved housing counselor for assistance.

 

If your servicer is not participating in the Program, ask your servicer or a housing counselor about other options that may be available.​

 

 

Beware of Foreclosure Rescue Scams – Help is Free

 

What are some of the warning signs of scams or fraud?

•There should never be a fee for assistance with or information about the Making Home Affordable Program.

•Beware of any person or organization that asks you to pay an upfront fee in exchange for a counseling service or modification of a delinquent loan. Do not pay – walk away!

•Beware of anyone who says they can "save" your home if you sign or transfer over the deed to your house. Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt.

•Never make your mortgage payments to anyone other than your mortgage company without their approval.

•The Obama Administration has launched a coordinated effort across federal and state government and the private sector to target mortgage loan modification fraud and foreclosure rescue scams that threaten to hurt American homeowners and prevent them from getting the help they need during these challenging times.

 

What should I do if I've been scammed?

  • First, get the help you need to avoid foreclosure. Contact your servicer immediately.
  • Contact a HUD-approved housing counselor through the Homeowner's HOPE Hotline at 888-995-HOPE (4673).
  • To learn about foreclosure rescue or loan modification scams, go to www.LoanScamAlert.org or www.ftc.gov/MoneyMatters. To file a complaint or to get free information on fraud and other consumer issues, call the Homeowner's Hope Hotline at 1-888-995-HOPE (4673) or contact the Federal Trade Commission at www.ftc.gov/consumerprotectionor 877-FTC-HELP (4357).

 

Home Affordable Foreclosure Alternatives Program (HAFA)

 

How does the HAFA Short Sale work?

In a Short Sale, the homeowner sells the property for less than the full amount due on the mortgage. When a homeowner qualifies for the HAFA Short Sale, the servicer approves the Short Sale terms prior to listing the home and then accepts the payoff in full satisfaction of the mortgage.

 

How does the HAFA Deed-in-Lieu of Foreclosure work?

With the Deed-in-Lieu of Foreclosure, the homeowner voluntarily transfers ownership of the property to the servicer in full satisfaction of the total amount due. The servicer may require that the homeowner list and market the property before they agree to a deed-in-lieu arrangement. In order for the Deed-in-Lieu of Foreclosure to work, the homeowner must provide a marketable title, free and clear of other mortgages, liens, or other encumbrances.

 

Home Affordable Modification Program (HAMP)

Can I get a mortgage modification through the Home Affordable Modification Program (HAMP) if my loan is not owned or guaranteed by Fannie Mae or Freddie Mac?

Yes. HAMP helps homeowners who are struggling to keep their loans current or who are already behind on their mortgage payments. By providing mortgage loan servicers with financial incentives to modify existing first lien mortgages, the Treasury hopes to help homeowners avoid foreclosure regardless of who owns or guarantees the mortgage.

 

How do I know if I am eligible for a modification under the Home Affordable Modification Program (HAMP)?

To apply for a modification under HAMP, you must:

•Be the owner-occupant of a one- to four-unit home.

•Have an unpaid principal balance that is equal to or less than:

◦1 Unit: $729,750

◦2 Units: $934,200

◦3 Units: $1,129,250

◦4 Units: $1,403,400

•Have a first lien mortgage that was originated on or before January 1, 2009.

•Have a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31% of your monthly gross (pre-tax) income.  The program has recently been expanded to include to those who struggle with secondary debt by offering an alternative evaluation opportunity with more flexible debt-to-income criteria.

 •Have a mortgage payment that is not affordable due to a financial hardship that can be documented.

 

If you answered YES to all of these questions, you may be eligible for a modification under HAMP. Only your servicer will be able to tell you if you qualify

.

What if I am facing foreclosure?

Participating servicers may not refer a loan for foreclosure sale or proceed with a foreclosure sale on an eligible loan until the homeowner has been evaluated for HAMP and, if eligible, a trial modification offer has been made. Participating servicers must use reasonable efforts to contact homeowners facing foreclosure to determine their eligibility, including in-person contacts at the servicer's discretion. Foreclosure sales may not be conducted while the loan is being considered for a modification or during the trial period. Additionally, once a homeowner has entered into a trial period plan by submitting the first trial period payment, the servicer may not take the first legal action to initiate a new foreclosure.

 

I am unemployed. Can I still get a mortgage modification?

If you are unemployed, ask your servicer immediately for consideration through the Home Affordable Unemployment Program (UP). (See the FAQ "Home Affordable Unemployment Program (UP)") for eligibility criteria and for more information.

•If you are currently in a HAMP trial period and just lost your job, you may request to be considered for UP as long as you entered the trial period plan before missing three full consecutive mortgage payments.

•If you are unemployed and were previously determined ineligible for a HAMP modification, you may be eligible for UP.

 

If you are currently in a permanent HAMP modification and just lost your job, you will not be eligible for UP. You may still be eligible for other foreclosure alternatives, including the Home Affordable Foreclosure Alternatives (HAFA). Please contact your servicer right away for more information. (See the FAQ "Home Affordable Foreclosure Alternatives Program (HAFA)") While you are being evaluated for UP, servicers who have signed a HAMP Servicer Participation Agreement (SPA) are not permitted to refer you to foreclosure or conduct a foreclosure sale. Find out if your servicer is a program participant.

 

Do I need to be behind on my mortgage payments to be eligible for a modification under HAMP?

No. Responsible homeowners who are struggling to remain current on their mortgage payments are eligible if they reasonably believe they are very likely to default on their mortgage soon (often referred to by loan servicers as "imminent default"). This might be because a homeowner has had (or will have) a significant increase in the mortgage payment (due to a payment adjustment or rate adjustment upwards); unemployment or some other significant reduction in income; or some other financial hardship that will make the mortgage unaffordable. If you are facing a similar situation, contact your servicer. You will be required to document your income and expenses and provide evidence of the hardship or change in your circumstances

 

I have a junior lien mortgage. Am I still eligible for HAMP?

Yes, the first lien mortgage is eligible for a modification under HAMP. (See the FAQ "Second Lien Modification Program (2MP)" for help with your 2nd lien.)

 

How do I know if my servicer is participating in HAMP? Are all servicers required to participate?

Participation in HAMP is mandatory for servicers of loans owned or guaranteed by Fannie Mae or Freddie Mac (Government Sponsored Enterprises or GSEs). Participation in HAMP is voluntary for servicers of non-GSE loans. However, substantial incentives are available to servicers and investors who complete modifications under HAMP, and most major servicers already have committed to the Program. A current list of participating servicers is available here.  Servicers not currently listed have until December 31, 2009 to opt into the Program. Servicers of non-GSE loans sign a contract with Fannie Mae, as Treasury's financial agent, through which they agree to review every potentially eligible homeowner who asks to be considered for the Making Home Affordable Program. To ensure that a homeowner currently at risk of foreclosure has the opportunity to apply for a modification under HAMP, participating servicers may not proceed with a foreclosure sale until the homeowner has been evaluated for a HAMP modification and, if eligible, a trial modification offer has been made.

 

Why does my loan servicer have to ask the lender or investor if they can do a loan modification through HAMP?

If the organization that services your loan does not own it, your servicer may need to get permission from the owner or investor before they can change any of the terms of your loan. Generally, there is a contract between the servicer and the investor that states what kind of actions the servicer is allowed to take. Most of these contracts, usually called servicing agreements or pooling and servicing agreements (PSAs), give the servicer flexibility to make modification decisions as long as the modification provides a better financial outcome for the lender or investor than not modifying the loan.

 

Is the interest rate subject to change during the term of the HAMP modification?

If the modified rate is below the market rate as determined from the Freddie Mac Primary Mortgage Market Survey rate on the date the modification agreement is prepared, the modified rate will be fixed for a minimum of five years as specified in your modification agreement. Beginning in year six, the rate may increase no more than one percentage point per year until it reaches the market rate at the time the modification agreement is prepared. Your rate can never be higher than the market rate as indicated in your modification agreement. If the modified rate is at or above the market rate at the time the modification agreement is prepared, the modified rate is fixed for the life of the loan.

 

Will a modification under HAMP include property taxes and homeowners insurance?

Yes. All loans modified under HAMP must include an escrow account for payment of future property taxes and hazard insurance, unless prohibited by state law. If your existing loan does not include an escrow account, one will be established. A new escrow account may require collection of a sufficient reserve to pay the taxes and insurance on or before they are next due. The reserve amount cannot be added to the modified loan amount. The servicer may give you the option of paying the reserve amount at the time the loan is modified or the option of spreading the amount over a period of 60 months and including it in the monthly escrow payment.

 

If I don't currently have an escrow account on my mortgage, am I still eligible for a modification under HAMP?

Yes, you are still eligible to apply for a modification under HAMP. Should you qualify for a modification and make all trial payments on time, your modification agreement with your servicer will require the servicer to set aside a portion of your new monthly payment in an escrow account for payment of your property taxes and insurance premiums.

 

If my mortgage qualifies for a modification under HAMP, will my escrow account payment change?

It might. Your escrow payment will adjust if your taxes and insurance premiums change, so the amount of your monthly payment that the servicer must place in escrow will also adjust as permitted by law.

 

What will the servicer do through HAMP to get my new modified payment down to 31% of my gross income?

•Lower the interest rate. Treasury is providing incentives to your servicer to write the interest down to as low as 2%, if necessary to get to a payment that you can afford. Each homeowner's interest rate will only be reduced to a point sufficient to get the modified payment to equal 31% of the homeowner's gross monthly income. Not all homeowners will need a rate reduction to 2% in order to achieve a monthly mortgage payment that is affordable.

•Extend the term. If a 2% interest rate does not result in a payment that is affordable (no more than 31% of your gross monthly income), your servicer will extend your payment term. At the servicer's option, the term of the loan could be extended up to 40 years.

•Forbear (defer) principal. If your payment is still not low enough, your servicer may defer a portion of the principal amount you owe until the maturity of the loan. This is called a principal forbearance. With a forbearance, you will still owe the principal; but repayment is deferred until a later date.

 

A portion of the principal could be also be forgiven. This is optional on the part of the servicer. There is no requirement for principal reduction or forgiveness, and there is no guarantee that your servicer will offer principal reduction or forgiveness.

 

I owe more than my house is worth. Will a modification under HAMP reduce what I owe?

The primary objective of the HAMP is to help homeowners avoid foreclosure by modifying troubled loans to achieve a payment the homeowner can afford. Servicers may, but are not required to, offer principal reductions. It is more likely that your servicer will use interest rate reductions and term extensions in order to make your payment more affordable.

 

What is a HAMP trial period?

The trial period is typically a three month period to see if the new payment plan will work for you, while providing you immediate relief and preventing any possible foreclosure sales from occurring. You should remember that during the trial, the terms and conditions of your original loan remain unchanged and only after you make all of your trial payments on time and send in all required documentation can your loan be officially modified.

 

Could my payment change in or after the trial period?

Your payment will be based on 31% of your verified income. Your monthly payment could increase if property taxes, homeowner's insurance, or homeowner's association fees increase after the trial period.

 

How will the HAMP modification affect my credit?

Accepting a loan modification can affect your credit score, but the actual effect will depend on a variety of factors. For more information about your credit score and how to improve it, visit www.ftc.gov/bcp/edu/pubs/consumer/credit/cre24.shtm.

 

Each month, servicers must describe to the credit reporting agencies the exact status of each mortgage. If you are current with your mortgage payments prior to the trial period and you make each trial period payment on time, your servicer must report you as current and also identify the loan as "modified under federal government plan."

 

If you are delinquent (at least 30 days past the due date) prior to the trial period and the reduced payments do not bring the account current, your servicer must report the level of delinquency and also identify the loan as "modified under federal government plan."

 

How will I know if my loan can be modified though HAMP?

Once your servicer confirms that you are eligible and you make all of your trial period payments on time, you will receive a modification agreement detailing the terms of the modified loan. Any difference between the amount of the trial period payments and your regular mortgage payment will be added to the balance of your loan along with any other past due amounts as permitted by your loan documents. While this will increase the total amount that you owe, it should not significantly change the amount of your modified mortgage payment as that is determined based on your total monthly gross income, not your loan balance.

 

Could I end up with a balloon payment through HAMP?

Yes. If your servicer determines that a principal forbearance is required to get your monthly mortgage payment to an affordable level, the principal forbearance amount, say for example this was $20,000, would be subtracted from the amount used to calculate your monthly mortgage payment, but you would still owe the money. You would have a $20,000 balloon payment that accrues no interest and was not due until you pay off your loan, refinance or sell your house.

 

What happens if I am unable to make payments during the trial period?

Homeowners who are unable to make the required payments by the end of the trial period are not eligible for a permanent modification under HAMP. However, you may be eligible for other foreclosure prevention options offered by your servicer.

 

How much will a modification cost me?

Homeowners who qualify for a modification under HAMP will never be required to pay a modification fee or pay past-due late fees. If there are costs associated with the modification, such as payment of back taxes, your servicer will give you the option of adding them to the amount you owe on your mortgage or paying some or all of the expenses in advance. Paying these expenses in advance will reduce your new monthly payment and save interest costs over the life of your loan. If you would like assistance from a HUD-approved housing counseling agency or are referred to a HUD-approved counselor as a condition of the modification, you will not be charged a counseling fee. Homeowners should beware of any organization that attempts to charge an upfront fee for housing counseling or modification of a delinquent loan, or any organization that claims to guarantee success.

 

Is housing counseling required for a modification under HAMP?

Homeowners, especially delinquent homeowners, are strongly encouraged to contact a HUD-approved housing counselor to help them understand all of their options and to create a workable budget plan. These services are free. Housing counseling is required, however, for homeowners whose total monthly debts are equal to or greater than 55% of their gross monthly income. When you apply for a modification under HAMP, your servicer will analyze all of your recurring monthly expenses, including car loans, credit cards, child support, and what you will pay toward your mortgage. If the sum of all of these recurring monthly expenses is equal to or more than 55% of your gross monthly income, you must agree to participate in housing counseling provided by a HUD-approved housing counselor as a condition of getting a modification under HAMP.

 

I heard the government is providing a financial incentive to homeowners through HAMP. Is that true?

Yes. Homeowners who make timely payments on their modified loans will receive success incentives. For every month you make a payment on time, you will accrue an incentive that reduces the principal balance on your loan. If your loan ceases to be in good standing (three monthly payments are due and unpaid on the last day of the third month), no further success payments will be paid, including accrued but unpaid amounts. The incentive will be applied directly to your loan balance annually—$1,000 each year—and over five years the total principal reduction could add up to $5,000. This contribution by the Treasury is designed to help you build equity faster.

 

I do not live in the house that secures the mortgage I'd like to modify. Is this mortgage eligible for a modification under HAMP?

No. If you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible to be modified under HAMP. If you used to live in the home but you moved out, the mortgage is not eligible. Only the first lien mortgage on your primary residence is eligible. The servicer will check to see if the dwelling is your primary residence. Misrepresenting your occupancy in order to qualify for this program is a violation of Federal law and may have serious legal consequences.

 

I have a mortgage on a duplex. I live in one unit and rent the other unit. Will I still be eligible for HAMP?

Yes. Mortgages on two, three and four-unit properties are eligible as long as you live in one unit as your primary residence.

 

Can FHA or VA loans be modified under HAMP? Are all loans eligible?

Most conventional loans including prime, subprime and adjustable loans, loans owned by Fannie Mae, Freddie Mac and private investors, and most loans in mortgage backed securities are eligible for a modification under HAMP. In July 2009, FHA launched the FHA-Home Affordable Modification Program to provide assistance to borrowers to modify their mortgages to provide more affordable payments. FHA-insured first lien mortgage loans that are modified under FHA-HAMP are eligible for certain incentive payments under HAMP. The Administration is working with FHA and VA on a program that would provide for modifications consistent with the Making Home Affordable Program. Currently, loans insured or guaranteed by VA are being modified under other programs.

 

How do I apply for a modification under HAMP?

If you meet the general eligibility criteria for a modification under HAMP, you should gather the financial documentation that your servicer will need to determine if you qualify (See FAQ "What information and forms will I need in order to be considered for HAMP?"). Once you have this information, you should contact your servicer and ask to be considered for a modification under HAMP. The servicer's phone number and email address is on your monthly mortgage bill or coupon book. Please be patient yet persistent. Your servicer may be handling a large volume of inquiries about the program and it may take some time before your servicer is able to process your application. If you would like to speak to a housing counselor, call 888-995-HOPE (4673). HUD-approved housing counselors can help you evaluate your income and expenses and understand your options, and apply to your servicer for HAMP. This counseling is FREE. If you have already missed one or more mortgage payments and have not yet spoken to your servicer, call your servicer immediately.

 

What information and forms will I need in order to be considered for HAMP?

Recently, Treasury announced a more streamlined homeowner evaluation process. Now, in order to apply for a Home Affordable Modification, homeowners can submit proof of income (See FAQ "What proof of income will I be required to provide with my HAMP application?") plus the following two forms:

 

  • The MHA Request for Modification and Affidavit Form (RMA). This Form captures information on borrower income, expenses, subordinate liens on the property, and liquid assets. It includes a Hardship Affidavit, fraud notice, and information about the Trial Period Plan.
  • The Internal Revenue Service (IRS) Form 4506T-EZ (Short Form Request for Individual Tax Return Transcript). This form gives permission for your mortgage servicer to request a copy of the most recent tax return you have filed with the IRS. After you have completed the form, print two copies—one for your records and one to send to your mortgage servicer.

 

Visit the "Request a Modification" section of MakingHomeAffordable.gov for more detailed information.

 

What proof of income will I be required to provide with my HAMP application?

Be prepared to submit a copy of your two most recent pay stubs that show year-to-date earnings. If you are self-employed, you must provide your most recent quarterly or year-to-date profit/loss statement. Visit the "Request a Modification" section of MakingHomeAffordable.gov for more detailed information. If you cannot find the required documentation, or have questions about the paperwork required, please call 888-995 HOPE (4673) and ask for "MHA HELP."

 

I'm self-employed. How do I get a copy of my most recent quarterly or year-to-date Profit and Loss Statement?

Contact your CPA (Certified Public Accountant) or the licensed tax professional who assists you in completing your tax documentation.

 

What types of documentation would be considered reliable enough to validate "Other Earned Income" for HAMP?

Other earned income (bonus, commission, fee, housing allowances, tips, overtime) must be documented by your employer in either your paystubs or other employment paperwork/contracts. Homeowners are encouraged to work with their employers to gather this information to describe the nature of the income and the continuity of the income.

 

How do I get evidence of benefit income (e.g, social security, disability, death benefits, pension, public assistance, adoption assistance)?

You can provide a copy of benefit letters/statements, disability policy, or receipt of payments such as copies of two most recent bank statements showing electronic deposit of benefits. For additional information regarding social security, disability or death benefit income, contact Social Security directly toll-free at 1-800-772-1213 or visit their website at www.socialsecurity.gov. For all other benefits, you must contact the provider directly for additional information.

 

How do I get evidence of unemployment benefits?

Evidence of unemployment income may currently be obtained through the Department of Labor UI benefit tool, which is available at www.ows.doleta.gov/unemploy/ben_entitle.asp.

 

After the Home Affordable Unemployment Program (UP) became effective on July 1, 2010, unemployment benefits and severance pay are no longer acceptable sources of income for HAMP consideration. (See FAQ "Home Affordable Unemployment Program (UP)" for more information about help for unemployed homeowners.)

 

My rental income was not reported on last year's tax returns because the property was vacant. What documentation do I need to validate rental income?

In such cases where a property has recently been rented, a signed Rental Agreement contract must be provided to show: the property address, date of contract, lessees name and address, rental amount and rental period. The contract must be signed by all parties (lessor, lessee, rental agents etc.)

 

How do I get a copy of my Divorce Decree, Separation Agreement or other legal written agreements filed with a court (e.g, alimony or child support)?

Gather the information listed below and contact the Office of Vital Statistics in the state where your divorce occurred. The homepage of the state's website will provide a link/information on how to contact the office of Vital Statistics. Generally, the documentation needed may include, but is not limited to, the following:

•Date of your divorce

•Full name of spouse

•Your driver's license number

•Purpose for which record is needed

•Your name and address, together with a self-addressed, stamped envelope

 

How long will modifications under HAMP be available?

HAMP expires on December 31, 2013. Your trial modification must be in place by that date.

 

My loan is scheduled for foreclosure soon. What should I do?

Contact your servicer immediately and ask to be considered for HAMP. Servicers participating in the HAMP program are not allowed to proceed with a foreclosure sale until you have been evaluated for a modification under HAMP, and, if eligible, offer you a trial modification. You may also contact a HUD-approved housing counselor for help by calling the Homeowner's HOPETM Hotline at 888-995-HOPE (4673).SECOND LIEN MODIFICATION PROGRAM (2MP)

 

Home Affordable Refinance Program (HARP)

 

What are the interest rate and other terms of a refinance under HARP?

The rate will be based on market rates in effect at the time of the refinance and the homeowner will be subject to any associated points and fees quoted by your lender. Interest rates may vary across lenders and over time as market rates adjust. The refinanced loans must have no prepayment penalties or balloon payments.

 

Can I get cash out of a HARP refinance to pay other debts?

No. The Home Affordable Refinance will not return cash to the borrower for the purpose of paying other debts.

 

How do I apply for a refinance under HARP?

Call your mortgage lender, or any lender approved to do business with Fannie Mae or Freddie Mac, and ask for a Home Affordable Refinance application. The number is on your monthly mortgage bill or coupon book. Please be patient yet persistent. Your lender could be handling a large volume of inquiries about the program and it may take some time before they are ready to process your application. In the meantime, it will help your lender and speed up the application process if you gather some information and documents before you call. It will help your lender if you gather some information and documents before you call. Generally, you will need the following:

•​​The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.

•The mortgage must have been sold to Freddie Mac or Fannie Mae on or before May 31, 2009.

•The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May 2009.

•You must be current on the mortgage at the time of the refinance, with no late payment in the past six months and no more than one late payment in the past twelve months.

•The current loan-to-value (LTV) ratio must be more than 80%.

 

I am delinquent on my mortgage. Will I qualify for a refinance under HARP?

No. Homeowners must be current on the mortgage at the time of the refinance, with no late payments in the past six months and no more than one late payment in the past twelve months. Contact your servicer to see if a modification under the Home Affordable Modification Program is an option for you.

 

Will I need mortgage insurance on a HARP refinance?

f your existing loan has private mortgage insurance, you will need the same amount of insurance coverage for a refinance under HARP. If your existing loan does not have private mortgage insurance, it will not be required as part of a refinance under HARP.

 

How long will refinances under HARP be available?

The program expires on December 31, 2013. Your refinance under HARP must have a mortgage note date on or before that date.

 

I'm current on my mortgage. Will a refinance under the Home Affordable Refinance Program (HARP) help me?​

Eligible homeowners who are current on their mortgages but have been unable to take advantage of today's lower interest rates because their homes have decreased in value, may now have the opportunity to refinance. Through a refinance under HARP, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they own or that they guaranteed in mortgage backed securities.​

 

How do I know if I am eligible for a refinance under HARP?

You may be eligible if:

•​You are the owner-occupant of a one- to four-unit home.

•The loan on your property is owned or guaranteed by Fannie Mae or Freddie Mac (See "How do I know if my loan is owned or has been guaranteed by Fannie Mae or Freddie Mac?").

•At the time you apply, you are current on your mortgage payments ("Current" generally means that you have not been more than 30 days late on your mortgage payment in the last 12 months; or, if you have had the loan for less than 12 months, you have never missed a payment).

•The amount you owe on your first lien mortgage does not exceed 125% of the current market value of your property.

•You have a reasonable ability to pay the new mortgage payments.

•The refinance improves the long term affordability or stability of your loan.

 

​​

Will refinancing lower my payments? How might HARP benefit me?

The objective of a refinance under HARP is to provide creditworthy homeowners who have shown a commitment to paying their mortgage the opportunity to get into a new mortgage with better terms.

 

Homeowners whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments. Homeowners who are paying interest only, who have a low introductory rate that will increase in the future, or who face a balloon payment may not see their current payment go down if they refinance to a fixed rate and payment. These homeowners, however, could save a great deal of money by reducing the amount of interest you pay over the life of the loan.

 

Refinancing into a more stable fixed-rate loan product and avoiding future mortgage payment increases would likely improve your ability to sustain your mortgage payments over the long-term. When you submit a loan application, your lender will give you a "Good Faith Estimate" and a "Truth in Lending Statement" that includes your new interest rate, mortgage payment, and the amount that you will pay over the life of the loan. Compare this to your current loan terms. If it is not an improvement, a refinancing may not be right for you.​

 

Will a refinance under HARP reduce the amount that I owe on my loan?

No. The objective of a refinance under HARP is to help homeowners get into more stable or more affordable loans. Refinancing will not reduce the principal amount you owe to the first lien mortgage holder or any other debt you owe. (See "How will I know if a refinance under HARP will improve the long-term affordability or stability of my loan?")

 

How will I know if a refinance under HARP will improve the long-term affordability or stability of my loan?

When you submit a loan application, your lender will give you a "Good Faith Estimate" and a "Truth in Lending Statement" that includes your new interest rate, mortgage payment, and the amount that you will pay over the life of the loan. Compare this to your current loan terms. If it is not an improvement, a refinancing may not be right for you.

 

How do I know if my loan is owned or has been guaranteed by Fannie Mae or Freddie Mac?

Ask your mortgage lender or servicer. Also, both Fannie Mae and Freddie Mac have established toll-free telephone numbers and web submission processes to make this data available. Homeowners can enter information to determine if either agency owns or guaranteed the loan. This information is not a guarantee of eligibility for a refinance under HARP, as other qualifying criteria must also be met.

For Fannie Mae:

1-800-7FANNIE (8am to 8pm EST)

www.FannieMae.com/loanlookup

 

For Freddie Mac:

1-800-FREDDIE (8am to 8pm EST)

www.FreddieMac.com/mymortgage

 

Home Affordable Unemployment Program (UP)

 

What is the Home Affordable Unemployment Program (UP)?

The Home Affordable Unemployment Program (UP) provides homeowners a forbearance, which is a temporary period of time during which your regular monthly mortgage payment is reduced or suspended. Click here to find out if your servicer is a program participant and when they will make up available to homeowners.

 

How do I know if I'm eligible for UP?

Participating servicers are required to offer an UP forbearance plan to you if you meet the minimum eligibility criteria:

•The mortgage loan is secured by a one- to four-unit property, one unit of which is your principal residence.

•   The mortgage loan is a first lien mortgage loan originated on or before January 1, 2009.

•Have an unpaid principal balance of the mortgage loan that is equal to or less than:

◦1 Unit: $729,750

◦2 Units: $934,200

◦3 Units: $1,129,250

◦4 Units: $1,403,400

•The current unpaid principal balance of the mortgage loan is equal to or less than $729,750.

•The mortgage loan is delinquent, or default is reasonably foreseeable.

•The mortgage loan has not been previously modified under HAMP, and you have not previously received an UP forbearance period.I

 

In order to be eligible, you must also:

•Request that your servicer consider you for UP before three full mortgage payments are due and unpaid. Click here to find out if your servicer is a program participant.

•Be unemployed when you request consideration for UP, and be able to document that you will receive unemployment benefits in the month of the forbearance period effective date.

•Your servicer may require that you have been on unemployment benefits for up to three months before your forbearance period can begin.

 

How do I apply for UP?

Contact your servicer immediately. You can phone, email, or write to your servicer to request an UP forbearance plan. Your servicer must be a participating HAMP servicer in order to offer the program. http://makinghomeaffordable.gov/get-started/contact-mortgage/to find out if your servicer is a program participant.

 

How long is the UP forbearance period?

The UP forbearance period is at least three months long. It can be extended, however, depending on investor and regulatory guidelines. Contact your servicer for more information.

 

What happens during the UP forbearance period?

During the UP forbearance period, your monthly mortgage payment must be reduced to no more than 31 percent of your gross monthly household income. Be sure to make these payments in a timely manner so as not to jeopardize your eligibility.

 

What happens at the end of the UP forbearance period?

If you get a new job during the forbearance period, let your servicer know. Otherwise, 30 days before your forbearance period expires, your servicer will provide you with an Initial Package so that you can request a modification through the Home Affordable Modification Program (HAMP). Return the Initial Package immediately so that the servicer can formally evaluate you for HAMP.

 

Is UP available for my 2nd mortgage?

No. UP can only be applied to a first mortgage.

 

What if I'm not eligible for UP?

If you are determined to be ineligible for HAMP, the servicer will consider you for other home retention options. If homeownership is no longer an affordable or desirable option, the servicer will consider you for additional foreclosure avoidance programs, including Home Affordable Foreclosure Alternatives Program (HAFA).

 

What other alternatives to foreclosure exist within the Making Home Affordable Program?

The Making Home Affordable Program will include additional foreclosure avoidance options through the Home Affordable Foreclosure Alternatives (HAFA) Program. The primary options available through HAFA include Short Sale and Deed-in-Lieu of Foreclosure.

 

How can I be considered for HAFA?

Homeowners must be evaluated for HAFA within 30 calendar days of the following:

•The borrower does not qualify for HAMP.

•The borrower does not successfully complete a HAMP Trial Period.

•The borrower is delinquent on a HAMP modification.

•The borrower requests a short sale or Deed-in-Lieu of Foreclosure.

 

However, before evaluating a homeowner for HAFA, a participating servicer must first consider that homeowner for other loan modification or retention programs that they offer. In addition, pursuant to the servicer's policies, every eligible homeowner must be considered for HAFA by a participating servicer before the homeowner's loan is referred to foreclosure and before the servicer may allow a pending foreclosure sale to continue.

 

 

Second Lien Modification Program (2MP)

 

How do I get help with my second mortgage?

The Second Lien Modification Program (2MP) is designed to work in tandem with the Home Affordable Modification Program (HAMP). Together, HAMP and 2MP create a comprehensive solution to help homeowners achieve greater affordability by lowering payments on both the 1st and 2nd liens.

 

 

 

What do I need to do to be considered for 2MP?

Under 2MP, when a homeowner's 1st lien is modified under HAMP and the servicer of the 2nd lien is a 2MP participant, that servicer must offer to modify or provide some level of extinguishment on the borrower's second lien. The 2MP offer will be made in reliance on the financial information provided by the homeowner in conjunction with the HAMP modification and without additional evaluation by the second lien servicer.

 

Bookmark and Share
Last Updated: 7/13/2012 4:21 PM