On October 8, the Treasury Department responded to the GAO’s 13 recommendations concerning the Troubled Asset Relief Program (TARP) contained in reports from December 2008, January, March, June and July 2009.
1. Treasury should establish a process to ensure compliance with all Capital Purchase Program (CPP) requirements, including those associated with limitations on executive compensation, limitations on dividends and stock repurchase restrictions.
Treasury responded that in June it “published the Interim Final Rule on executive compensation promulgated under the EESA,” and that the Rule “contains distinct requirements for recipients of TARP funding … including participants in the CPP.” Treasury noted that the Rule establishes the Office of the Special Master for TARP Executive Compensation, which reviews “any bonuses, retention awards, and other compensation paid to the five senior executive officers and the 20 most highly-compensated employees of each TARP recipient.” The Rule also requires CPP participants to adopt a luxury expenditure policy, and for certain executives to certify compliance with the Rule.
2. Develop a communication strategy/vision that includes building an understanding and support for the various components of the program, specifically actions to preserve homeownership. Specific actions could include hiring a communications officer, integrating communications into TARP operations, scheduling regular and ongoing contact with congressional committees and members, holding town hall meetings with the public across the country, establishing a council of advisors, and leveraging available technology. Fully implement a communication strategy that ensures that all key congressional stakeholders are adequately informed and kept up to date about TARP.
Treasury noted that “OFS is developing an integrated communications plan in coordination with Treasury’s Offices of Public Affairs, Legislative Affairs, OFS program offices, and is hiring the appropriate staff to execute” the plan. It also highlighted the creation of the financialstability.gov and makinghomeaffordble.gov websites. Treasury also touted its “national outreach campaign in local markets hardest hit by foreclosure.”
3. Develop a comprehensive system of internal control over TARP, including policies, procedures, and guidance for program activities that are robust enough to ensure that the program's objectives and requirements are being met.
Treasury highlighted its “comprehensive set of assessments geared toward identifying risks, evaluating their potential impact, and prioritizing resource assignments to manage risks.” It also discussed its Internal Control Framework, used “as a guide to assist management in the establishment of controls for new programs.”
4. Update OFS documentation of certain internal control procedures and the guidance available to the public on determining warrant exercise prices to be consistent with actual practices applied by OFS.
Treasury stated that this recommendation had been implemented by clarifying its procedures for determining warrant exercise prices in May 2009, and by completing “documentation of CPP process flows, risk and compliance matrices, and narratives,” in June 2009.
5. Complete the review of, and as necessary renegotiate, the existing vendor conflicts-of-interest mitigation plans to enhance specificity and conformity with the new interim conflicts-of-interest rule. Take continued steps to manage and monitor conflicts of interest and enforce mitigation plans.
The Treasury Department stated that it is “actively renegotiating contracts and financial agent agreements in place before the new Conflict of Interest interim final regulation became effective” in January, and has “successfully renegotiated” five of the eight contracts that required modifications. It also noted that the Corporate Records Compliance Office now works with contractors “at the outset of the contract to identify conflicts mitigation plans.”
6. In consultation with the Chairmen of the Federal Deposit Insurance Corporation and the Federal Reserve, the Comptroller of the Currency, and the Acting Director of the Office of Thrift Supervision, ensure consideration of generally consistent criteria by the primary federal regulators when considering repurchase decisions under TARP.
Treasury argued that it “is not in a position to dictate criteria that regulators should apply in making such decisions,” and noted that “to the extent different regulators may apply different criteria in making that determination, that variation is a function of the division of authority under the bank regulatory system.”
7. Explore options for providing to the public more detailed information on the costs of TARP contracts and agreements, such as a dollar breakdown of obligations and/or expenses.
Treasury announced its intention to update the financialstability.gov website “to include descriptive information related to TARP contracts and agreements.”
8. Consider methods of (1) monitoring whether borrowers with total household debt of over 55 percent of their income who have been told that they must obtain HUD-approved housing counseling do so, and (2) assessing how this counseling affects the performance of modified loans to see if the requirement is having its intended effect of limiting re-defaults.
Treasury highlighted its requirement that high debt-to-income borrowers certify that they will obtain counseling, and announced its intention to identify the proportion of borrowers that obtain counseling. The Treasury Department also stated that it is “first and foremost committed to preventing foreclosures and does not plan to deny modifications to borrowers who successfully complete the trial period and meet the other requirements for a Home Affordable Modification Program (HAMP) modification.
9. Reevaluate the basis and design of the Home Price Decline Protection (HPDP) program to ensure that HAMP funds are being used efficiently to maximize the number of borrowers who are helped under HAMP and to maximize overall benefits of utilizing taxpayer dollars.
Treasury made “two fundamental changes” to HPDP. It linked the size of HPDP incentive payments to the size of the unpaid principal balance of the mortgage, and it scaled the incentive payments “according to the mark-to-market loan-to-value market ratio.” Treasury also noted its opposition to “making HPDP incentives available only for loans that would not otherwise pass the Net Present Value test,” as it would “potentially result in a reduced number of modifications for otherwise eligible borrowers.”
10. Institute a system to routinely review and update key assumptions and projections about the housing market and the behavior of mortgage holders, borrowers, and servicers that underlie Treasury’s projection of the number of borrowers whose loans are likely to be modified under HAMP and revise the projection as necessary in order to assess the program’s effectiveness and structure.
Treasury noted that “projections of HAMP program participation are updated quarterly,” and that it continues to “gather data on the determinants of borrower participation as it becomes available. It also announced that statistics from “the nation’s largest housing markets” are collected regularly. Both sets of data are available on makinghomeaffordable.gov. Treasury stressed that it “continues to review and refine the Net Present Value model," and has assembled a NPV modeling team to create a list of needed improvements.
11. Place a high priority on fully staffing vacant positions in HPO—including filling the position of Chief of Homeownership Preservation with a permanent placement—and evaluate HPO’s staffing levels and competencies to determine whether they are sufficient and appropriate to effectively fulfill its HAMP governance responsibilities.
Treasury stated that it “continues to hire highly qualified individuals to administer the HAMP,” and that “HPO is making excellent progress in staffing vacant positions and in hiring a permanent Chief."
12. Expeditiously finalize a comprehensive system of internal control over HAMP, including policies, procedures, and guidance for program activities, to ensure that the interests of both the government and taxpayer are protected and that the program objectives and requirements are being met once loan modifications and incentive payments begin.
Treasury noted that it has a “comprehensive system of internal controls over the HAMP,” evidence of which has previously been provided to the GAO. It also emphasized that it has issued six directives, available on the HAMP website, to “guide program participants.” It announced that it is working with both Fannie Mae and Freddie Mac to “assess the design and refine the internal controls implemented within their operations,” and that it has assembled a HAMP Compliance Committee to “understand servicers’ compliance review results.”
13. Expeditiously develop a means of systematically assessing servicers’ capacity to meet program requirements during program admission so that Treasury can understand and address any risks associated with individual servicers’ abilities to fulfill program requirements, including those related to data reporting and collection.
Treasury stated that it has worked with Freddie Mac “to develop a means of assessing servicers’ capacity to meet program requirements,” including on-site reviews. However, Treasury argued that the reviews need not “be linked to the admission process because, upon admission, a servicer” is obligated to review a borrower for eligibility “for a HAMP trial modification before beginning any foreclosure actions.”