Treasury Notes

 The Wind Down of TARP is Almost Complete

By: Adam Hodge

The U.S. Treasury Department made significant progress towards completing the wind down of the Troubled Asset Relief Program (TARP) in 2013.  Treasury fully exited the taxpayers’ investment in General Motors (GM), recovered an additional $5.9 billion of the investment in Ally Financial (Ally), and substantially wound down the remaining bank investments. Forty banks repaid taxpayers and Treasury auctioned or otherwise sold our positions in 81 institutions.  To date, Treasury has recouped $432.8 billion on all TARP investments – including the disposition of Treasury’s remaining investment in AIG – compared to $421.9 billion disbursed.

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In December of 2012, GM repurchased 200 million shares of GM common stock from Treasury. At that time, Treasury announced that we would sell the remaining shares gradually over the following 12-15 months, and we began doing so in January. Over the course of the year, GM’s common stock was added to the S&P 500 index, and the average daily volume of trading increased.  As a result, we were able to complete the exit earlier this month.

Treasury’s investment in the American auto industry was part of President Obama’s broader response to the financial crisis.  Had the Administration not acted to support the automotive industry, the cost to the country would have been substantial — in terms of lost jobs, lost tax revenue, reduced economic production, and other consequences. We recovered $39 billion from the original GM investment, and our actions have enabled the industry to rebound.  Since 2009, more than 370,000 new auto jobs have been created, and GM, Chrysler, and Ford are profitable, competitive and growing.

In 2013, Ally, now the only remaining investment under the Automotive Industry Financing Program, completed an important restructuring plan that Treasury announced last year as a pathway to exit. Ally sold its international operations for more than $9 billion.  In addition, the company addressed the legacy mortgage liabilities from its subsidiary, Residential Capital or “ResCap,” with the bankruptcy court’s approval of ResCap’s restructuring plan this month. And in November, the Federal Reserve announced that it did not object to Ally’s revised capital plan, allowing the company to repurchase all of the Mandatorily Convertible Preferred shares Treasury held, and return $5.9 billion to taxpayers.

Taxpayers are now in a stronger position to maximize the value of their remaining investment in Ally.  We will work with the company to further wind down this investment through either a public offering, private sale of its common shares or further sales of assets.  

Treasury’s success with the TARP wind down was not limited to the auto program.  The Credit Market and Bank Support Programs also crossed significant milestones in 2013.   

Treasury took an important step in June when we recovered the last of our investments in the Public-Private Investment Program, or PPIP, one of the programs Treasury created to respond to the financial crisis.  Treasury used PPIP to unfreeze the markets that provide credit to American families and businesses.  The government partnered with private investors to provide financing on attractive terms to several funds created to facilitate the purchase of troubled legacy mortgage-backed securities.  

This helped bring private capital back to these markets, which in turn increased the availability of loans to families and businesses. Under the program, Treasury originally disbursed $18.6 billion, and has now recovered all of our PPIP debt and equity investments, earning a $3.3 billion positive return.  In 2013, we also completed the wind down of the Term Asset Backed Securities Loan Facility (TALF).

Lastly, Treasury made great strides winding down the Capital Purchase Program (CPP) this year.  Treasury originally invested $204.9 billion in 707 viable institutions in communities across the country to help stabilize the financial system.  To date, Treasury has recovered $224.9 billion – a $20 billion positive return.  

Treasury recouped $2.9 billion on the 81 bank investments that we auctioned in 2013.  In addition, 40 other banks repaid the investments.  We intend to continue using a combination of repayments, restructurings, and sales to manage and recover the outstanding investments in 89 banks.  Every additional dollar we recover will be an additional positive return to taxpayers.

While almost all TARP investments have been recovered, Treasury is continuing to help families through the housing assistance programs launched under TARP.  There have now been 1.8 million homeowner assistance actions under the Making Home Affordable (MHA), and we continue to help thousands of new families each month. Throughout 2013, the median savings for homeowners in the HAMP program on their mortgage payments each month was $547 – a nearly 40 percent savings from their previous payment.  And in May, we extended the MHA program through December 31, 2015, aligning it with extended deadlines for the Home Affordable Refinance Program (HARP).
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In November, the Making Home Affordable (MHA) team held its 90th borrower outreach event, and to date has visited 57 cities. The MHA team held 10 events across the country this year, including a Help for Homeowner event that Secretary Lew attended in September.  At the event in Landover, Maryland, the Secretary met with homeowners affected by the financial crisis and participated in a roundtable discussion with the DC metropolitan area’s housing leaders to discuss local and national approaches to foreclosure prevention. 

In 2013, states launched new and important initiatives to address the challenges facing their housing markets through the Hardest Hit Fund (HHF) program, including Florida's Elmore program. Funded by the Treasury’s HHF, the Elmore program assists elderly homeowners with FHA’s Home Equity Conversion Mortgages, better known as reverse mortgages. The Elmore program helps homeowners who because of financial hardship, are having difficulty making property tax and homeowner’s insurance payments and may be facing foreclosure as a result.  

Also in 2013, Michigan and Ohio launched blight elimination programs under the Hardest Hit Fund to help eliminate vacant homes in their states. Michigan allocated $100 million, and Ohio allocated $60 million for their respective programs, which aim to prevent foreclosures through demolition, greening, and ongoing maintenance of vacant and abandoned residential properties.  

2014 promises to be a year filled with TARP activity. Treasury will continue its efforts to provide relief to families at risk of foreclosure and to help the housing market recover from a historic crisis. And the Department is poised to make even more progress winding down TARP. While the year might change, Treasury’s strategy in this regard remains the same: we will continue to wind down these investments in a manner that balances maximizing taxpayers’ return with the speed of our exit.

Adam Hodge is a Spokesperson for Domestic Finance at the U.S. Department of the Treasury.
Posted in:  Financial Stability
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