Department of Treasury (US)

December 2, 2010
TG-992

Taxpayers Receive Additional $1.8 Billion in Proceeds from GM IPO

Exercise of Over-allotment Option Brings Total Taxpayer
Proceeds from GM IPO to $13.5 Billion

IPO Reduced Treasury's Common Stock Stake in GM
by Nearly Half from 60.8 Percent to 33.3 Percent

WASHINGTON – The U.S. Department of the Treasury announced that it today received $1.8 billion in additional net proceeds from General Motors' (GM) initial public offering (IPO), bringing overall net proceeds for taxpayers from the GM IPO to $13.5 billion.

On November 23, Treasury received $11.7 billion in net proceeds from the sale of 358,546,795 shares of common stock in GM's IPO. The underwriters in the offering had a 30-day option to purchase up to 53,782,019 additional shares of common stock from Treasury at the same price to cover over-allotments. The underwriters exercised this over-allotment option in full on November 26, and Treasury today received $1.8 billion in net proceeds from the sale of those additional shares.

"General Motors' IPO is a testament to that company's turnaround and the significant progress we have made continuing to exit our investments and recover taxpayer dollars," said Tim Massad, Acting Assistant Secretary for Financial Stability.

The exercise of the over-allotment option increased the overall amount of GM common stock that Treasury sold in the GM IPO to 412,328,814 shares. In total, the GM IPO reduced Treasury's ownership of GM's outstanding common stock by nearly half from 60.8 percent to 33.3 percent. 

U.S. Department of Treasury Participation in the GM IPO

 

Shares of Common Stock Sold

Net Proceeds ($ billions)

Initial Sale

358,546,795

$11.7

Over-Allotment

53,782,019

$1.8

Total

412,328,814

$13.5

Treasury has invested a total of $49.5 billion in General Motors. In October, Treasury announced that it accepted an offer by GM to repurchase $2.1 billion of preferred stock – a transaction that is expected to occur in mid-December 2010. With this repurchase and the IPO, taxpayers will have received a total of $23.1 billion from GM through repayments, interest, and dividends since the company emerged from bankruptcy in July 2009. Following the IPO and the preferred stock repurchase, Treasury's remaining stake in GM will consist of 500,065,254 shares of common stock.

Treasury Investment in GM

($ billions)

 

Return from GM

($ billions)

Pre-January 2009

13.4

 

Net IPO Proceeds

13.5

Post-January 2009

36.1

 

Debt Repayment

6.7

 

 

 

Proposed Preferred Stock Repurchase

2.1

 

 

 

Interest & Dividends

0.8

Total

$ 49.5

 

Total

$ 23.1

The proceeds from the GM IPO bring the total amount of TARP funds that have been returned to taxpayers to nearly $254 billion. 

TARP Funds Returned to Taxpayers

($ billions)

Repayments Prior to GM IPO

204.3

Profits from Dividends, Interest, Warrant Sales, and Other Income

31.0

Cancelled Commitments (Asset Guarantee Program)

5.0

GM IPO

13.5

Total

253.8

###

December 2, 2010
TG-990

Treasury Designates Four Individuals Responsible for violence in
the Democratic Republic of Congo

WASHINGTON – The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) today designated Gaston Iyamuremye, Leodomir Mugaragu and Felicien Nsanzubukire, three individuals who are part of the leadership of the Democratic Forces for the Liberation of Rwanda (FDLR), one of the most violent armed groups operating in the Democratic Republic of Congo (DRC).  Also designated today was Innocent Zimurinda, an officer in the Congolese Armed Forces (FARDC), who is responsible for targeting children in connection with the ongoing civil conflict in the eastern part of the DRC. 

Today's action was taken pursuant to Executive Order 13413, which targets persons who contribute to the conflict in the DRC.  As a result of today's designations, U.S. persons are prohibited from engaging in any transactions with these individuals, and any assets the designees have under U.S. jurisdiction are frozen.  The four individuals were also sanctioned by the United Nations Security Council's Committee established pursuant to Resolution 1533 concerning the DRC. They have been added to the Committee's list of individuals and entities subject to multilateral sanctions, including an international travel ban and asset freeze.

"These four individuals are responsible for violence and instability in the eastern DRC and the region," said OFAC Director Adam Szubin.  "Today, Treasury joins the world community in sanctioning these men for their roles in a conflict that has been marked by widespread killing and displacement of civilians, sexual violence, and the recruitment and use of child soldiers." 

As senior political or military leaders of the FDLR, Gaston Iyamuremye, Leodomir Mugaragu and Felicien Nsanzubukire are responsible for perpetuating instability in the DRC.  Gaston Iyamuremye is the FDLR's president, making him the highest ranking FDLR political leader. Leodomir Mugaragu is serving as the chief of staff of the FDLR's military and is a senior planner for military operations in eastern DRC.  Felicien Nsanzubukire, an FDLR Lieutenant Colonel, has been instrumental in the procurement and oversight of the FDLR's ammunition and weapons supplies.

Innocent Zimurinda is responsible for targeting children in situations of armed conflict in the DRC, through killing and maiming, sexual violence, abduction, and forced displacement.  Since 2009, Zimurinda has ordered FARDC troops under his command to rape and kill civilians, including children.

Identifying Information:

Individual:   
GASTON IYAMUREMYE
AKA:    
Michel BYIRINGIRO
AKA:    
RUMULI
AKA:   
Byiringiro Victor RUMULI
AKA:    
Michel RUMULI
AKA:    
Victor RUMURI
DOB:    
1948
POB:    
Musanze District (Northern Province), Rwanda
Alt. POB:  
Nyakinama, Ruhengeri, Rwanda
Address:   
Kibua, North Kivu, Democratic Republic of the Congo
Title:    
FDLR President
Title:    
FDLR 2nd Vice President
Rank:    
Brigadier General

Individual:   
LEODOMIR MUGARAGU
AKA:    
Manzi LEON
AKA:    
Leo MANZI
DOB:    
1954
Alt. DOB:  
1953
POB:   
Kigali, Rwanda
Alt. POB:   
Rushashi (Northern Province), Rwanda
Address:   
Katoyi, North Kivu, Democratic Republic of the Congo
Title:    
FDLR/FOCA Chief of Staff
Rank:    
Brigadier General

Individual:  
FELICIEN NSANZUBUKIRE
AKA:    
Fred IRAKEZA
DOB:    
1967
POB:    
Murama, Kinyinya, Rubungo, Rwanda
Nationality:  
Rwanda
Title:   
Lt. Col.

Individual:  
INNOCENT ZIMURINDA
DOB:    
September 1, 1972
Alt. DOB:  
1975
POB:   
Ngungu, Masisi Territory, North Kivu province,
Democratic Republic of the Congo
Title:   
Lt. Col.

###

December 1, 2010
TG-985

Written Testimony by Under Secretary for Terrorism and Financial Intelligence Stuart Levey Before the House Committee on Foreign Affairs

Implementing Tougher Sanctions on Iran: A Progress Report

Chairman Berman, Ranking Member Ros-Lehtinen, and distinguished members of the Committee, thank you for the opportunity to appear before you today to discuss the current status of the global effort to increase pressure on Iran.  I am pleased to be here today with Under Secretary Bill Burns, who will explain the Administration's overall approach to Iran as well as the implementation of sanctions on the Iranian energy sector.  I will provide you with an overview of the pressure strategy and recent actions taken by the U.S. and our international partners to hold Iran accountable for its continued illicit conduct as well as the critical role the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (CISADA) is already playing in our overall effectiveness.  I will also describe the impact we have seen these measures having on Iran thus far.

While we still have a great deal of work in front of us, I can report today that we have made significant progress implementing our strategy.  One key to our progress has been the impact of financial measures imposed by the U.S. and others in the wake of UNSCR 1929, including the financial provisions of CISADA.  Today, Iran has dramatically reduced access to financial services from reputable banks, and is finding it increasingly difficult to conduct major transactions in dollars or euros.  With great regularity, major companies are announcing that they have curtailed or completely pulled out of business dealings with Iran.  And, as has been widely reported, Iran's leadership appears to have underestimated the severity and effects of the global financial measures, giving rise to internal Iranian criticism and finger pointing.  The strategy is already beginning to have the effect it was designed to have:  By sharpening the choice for Iran's leaders between integration with the international community and, alternatively, increasing isolation, we are creating the leverage needed for effective diplomacy.

Iran Sanctions Strategy

A little more than a year ago, I explained in testimony before Congress that we had developed a strategy to impose substantial costs on the government of Iran if and when the President determined that such pressure was needed to affect Iranian policies.  The plan we developed took into account that no single sanction is a "silver bullet" and that we would need to impose a variety of measures simultaneously in order to increase their effectiveness.  We also knew that we would need to target several of Iran's vulnerabilities simultaneously, and that we would need to secure the support of the largest possible international coalition of governments and private actors.  Finally, because conduct-based financial measures that target illicit actors have proven to be an effective way to build such a broad coalition, we set out to focus our measures, to the extent possible, on Iran's illicit conduct, such as its proliferation of weapons of mass destruction (WMD) and support for terrorism.

By concentrating our sanctions programs on Iran's illicit conduct and its perpetrators – for example, the Islamic Revolutionary Guard Corps (IRGC) and Iran's national maritime carrier, the Islamic Republic of Iran Shipping Lines (IRISL) – we sought to maximize the chances of achieving a truly multinational coalition, because it is difficult for any government, whether an ally or not, to oppose taking action targeted against these types of activities.  Equally as important, recognizing the commercial risks associated with doing business with Iran and to protect themselves from being unwitting participants in Iran's illicit conduct, private sector actors willingly implement the financial measures and, in fact, often take steps that go beyond the strict legal requirements.  As more banks and businesses cut off their dealings with risky individuals and entities, the reputational risk increases for those that have not.  This encourages additional firms to join in creating a ripple effect that amplifies the effect of sanctions.  Moreover, when private sector consensus gels around taking certain actions, governments find it easier to require additional measures.  The result is a mutually-reinforcing cycle of governmental and private sector action that isolates bad actors from the legitimate financial system.  The effect of this on our targets is significant.  When an individual or entity is cut off from access to international financial institutions, their ability to access the commercial sector is significantly affected.

As we designed our strategy, we also knew that Iran would seek to evade the measures we put in place.  We therefore sought to create a sanctions program that is specifically adaptive and responsive to Iranian evasion attempts.  The examples of Iran's deception are numerous.  Iranian banks and companies have concealed their involvement in transactions by removing or stripping their names from transaction documents.  Non-sanctioned Iranian banks have stepped into the shoes of sanctioned banks to disguise the role of sanctioned banks in transactions.  IRISL, which we designated in 2008, has renamed and even repainted ships, and changed the nominal ownership of vessels, all to hide their connection to the shipping company.  A good example of Iran's continued deceptive and illegal conduct has been widely reported recently.  Just a few weeks ago, Nigeria intercepted and seized an Iranian weapons shipment, including 13 containers of rockets and explosives, which were labeled as building materials.  Several Iranians in Nigeria quickly sought refuge in the Iranian embassy, and last week, a Nigerian court charged a reported member of the IRGC in the plot.

We have publicized this kind of deceptive activity and have taken enforcement action against those that have cooperated in these deceptive practices and thereby facilitated Iran's illicit conduct.  Amid the wealth of derogatory information, the private sector has become increasingly wary of engaging in any business with Iran.  Many in the private sector are simply unable to distinguish between Iran's legitimate and illicit transactions, and so they have opted to cut off Iran entirely.  In this way, Iran's own evasion and deceptive conduct is further increasing its isolation.

UNSCR 1929 and its Implementation

It would be difficult to overstate the importance of UNSCR 1929 to our strategy.  It has been essential to broadening our international coalition and is the foundation upon which robust sanctions implementation internationally has been based.  In the diplomacy leading up to the adoption of UNSCR 1929, we pushed hard for provisions that would create this foundation.

UNSCR 1929 includes several significant provisions, including:  A ban on certain ballistic missile activity; a ban on Iran's investment in nuclear and missile-related industries abroad; a ban on the export to Iran of certain heavy weapons; mechanisms for inspecting Iranian cargo and seizing contraband; and a requirement to exercise vigilance when conducting certain business with Iranian entities, including the IRGC and IRISL.   On the financial side, UNSCR 1929 lays the foundation for robust international sanctions in its call to member states to prevent the provision of financial services (including banking, insurance, and reinsurance), if there are reasonable grounds to believe that such services could contribute to Iran's nuclear or missile programs.  The vast body of public information demonstrating the scope of Iran's illicit conduct and deceptive practices -- practices that have facilitated its proliferation activities -- makes it nearly impossible for financial institutions and governments to assure themselves that transactions with Iran could not contribute to proliferation-sensitive activities.

Both prior to and in the aftermath of UNSCR 1929, we have worked closely with our allies to ensure serious and resolute follow-on implementation of its provisions.  Over the past several months, the sanctions regimes adopted by the European Union, South Korea, Japan, Canada, Australia, Norway and others contain a number of powerful features.  In addition to designating a wide range of actors engaged in illicit conduct, including the entire IRGC and IRISL, many of these sanctions programs also include:  A prior authorization regime that requires the vetting of significant transactions with Iran; the imposition of severe restrictions on export credits for business with Iran; a prohibition -- either formal or de facto -- on the establishment of new branches of Iranian banks in these jurisdictions, or of their home-country banks in Iran; and formal or de facto prohibitions on the establishment of new correspondent relationships between their banks and Iranian banks.

In particular, the EU's regime exerted a great deal of influence over the shape of the sanctions programs enacted by other nations, for it contains a robust complement of systemic measures designed to protect against widespread Iranian abuse.  The EU subjected scores of individuals and entities tied to Iran's nuclear, missile, and conventional weapons programs to an asset freeze – including Bank Mellat, Bank Saderat, Future Bank, Post Bank, Persia International Bank, the Export Development Bank of Iran – in addition to Bank Melli and Bank Sepah, which the EU had previously designated.  The EU also designated the IRGC, IRISL, and numerous entities that are owned or controlled by, or operate on behalf of, those organizations.  Significantly, the EU measures include an asset freeze on IRISL and a prohibition on the loading and unloading of cargoes on or from IRISL vessels in ports of EU Member States. 

Beyond freezing the assets of a targeted list of individuals and entities, the EU's measures also comprehensively address the conduct of financial dealings with any Iranian person or entity.  The EU's regime requires additional monitoring when doing any business with Iranian entities and entities owned or controlled by Iranian entities.  In what is perhaps its most consequential measure, the EU has imposed a prior authorization regime designed with Iran's history of deceptive financial conduct in mind.  Under the prior authorization regime, transactions to or from an Iranian individual or entity, of or above 40,000 Euros generally must be approved in advance by the EU host nation's regulator.  Financial institutions must also notify their regulators of transactions to or from an Iranian individual or entity above 10,000 Euros.  The EU also prohibited the provision of insurance and reinsurance to the Government of Iran or Iranian entities and banned the opening of new branches, subsidiaries, or representative offices of Iranian banks within the EU.  Similarly, EU banks are prohibited from establishing new joint ventures or correspondent relationships with, or taking an ownership interest in, Iranian banks.  They also are prohibited from opening new offices, subsidiaries, or banking accounts in Iran.

CISADA

When it passed CISADA, Congress took an extraordinarily effective step in bolstering U.S. sanctions authorities with respect to Iran.  CISADA complements UNSCR 1929 and previously existing sanctions authorities by inter alia dramatically strengthening U.S. financial sanctions on Iran, restricting U.S. government contracts for companies that engage in sanctionable business with Iran, strengthening existing U.S. sanctions with respect to Iran's energy industry, and providing for sanctions on those responsible for or complicit in serious human rights abuses in Iran.   

As you know, CISADA requires Treasury to issue regulations to prohibit or impose strict conditions on access to the U.S. financial system by any foreign financial institution that Treasury determines knowingly engages in one of the following activities: (1) facilitating the efforts of the Government of Iran (including the IRGC) to acquire or develop WMD or delivery systems for WMD, or to support terrorism; (2)  facilitating the activities of a person subject to financial sanctions pursuant to UNSCRs with respect to Iran; (3) engaging in money laundering to carry out certain illicit conduct; (4) facilitating the efforts by the Central Bank of Iran or any other Iranian financial institution to engage in certain illicit conduct; or (5) facilitating significant business for U.S.-designated IRGC individuals or entities, or for financial institutions designated by the U.S. Government in connection with Iran's WMD program or support for international terrorism. 

Treasury published the Iranian Financial Sanctions Regulations to give effect to the financial provisions of CISADA on August 16, 2010.  The regulations implement these provisions in several ways, most importantly by describing the factors that Treasury may consider when determining whether to impose sanctions under CISADA.  While any such determination will be made according to the totality of the facts and circumstances of each specific case, the factors we identify in the regulations that we may consider include the size, number, and frequency of the transactions; the level of awareness of the transactions by senior management and whether they are part of a pattern of conduct; and whether the financial services involve an attempt to engage in deceptive practices.

CISADA's financial provisions are quite powerful as they force a stark choice:  If you conduct certain business with Iran, you risk losing access to the U.S. financial system.  In this way, CISADA creates a multiplier effect for certain U.S. designations.  Most notably, any significant business by a foreign financial institution with any U.S.-designated IRGC individual or entity or with any one of the 17 Iran-related financial institutions designated by the U.S. for terrorism or proliferation carries with it the possibility of that foreign financial institution being cut off from the U.S. financial system. 

We have moved quickly to implement CISADA's financial provisions, and have already contacted governments and financial institutions in more than a dozen countries to investigate conduct that could be sanctionable under the Act.  What we are seeing thus far is very positive – even banks that had been willing to maintain accounts for designated Iranian banks are now reversing course or cutting ties with Iran altogether.  Nevertheless, we know that Iran continues to search for work-arounds, and we must and will remain vigilant in enforcing this law.

U.S. Actions and Outreach Help Drive Global Implementation of Sanctions

All elements of the Administration have been very active during the past several months in the implementation of U.S. and UN sanctions on Iran.  Since the adoption of UNSCR 1929, Treasury has used its authorities to target the full range of Iran's illicit and deceptive conduct by imposing sanctions on illicit actors themselves, as well as the banks, front companies, and ships that are the conduits for their conduct.  As part of a broader U.S. Government outreach effort, Treasury officials have also been traveling the world to encourage robust implementation of UNSCR 1929 and to educate other governments and the international private sector about recent U.S. measures, particularly CISADA.

Targeted Financial Measures

The actions taken since June generally fall into five categories: Iranian-owned banks; IRGC-affiliated targets; IRISL front companies and vessels; Iranian human rights violators; and Iranian government entities identified pursuant to the Iranian Transactions Regulations (ITR).  In the category of actions against Iranian-owned banks, Treasury designated Iran's Post Bank shortly after the adoption of UNSCR 1929 for providing financial services to, and acting on behalf of, U.S.- and UN-designated Bank Sepah.  Post Bank's history provides yet another example of the deceptive practices Iran routinely employs to evade sanctions.  At one point, Post Bank's business was conducted almost entirely within Iran.  With Iran's state-owned banks facing increasing sanctions, Iran began using Post Bank to facilitate international trade.  Post Bank actively stepped into the shoes of Bank Sepah to carry out transactions set up by Bank Sepah and to hide Bank Sepah's involvement. 

In September, Treasury also designated Iranian-owned Europäisch­-Iranische Handelsbank (EIH), a bank located in Hamburg that had acted as a key financial lifeline for Iran and as one of Iran's few remaining access points to the European financial system.  EIH had facilitated billions of dollars worth of transactions on behalf of Iranian banks previously designated for proliferation-related activities.  EIH became the 17th Iran-related bank designated in connection with Iran's provision of support to terrorism or its proliferation activities.  As described above, because of the potential application of CISADA, these actions make it extraordinarily risky for any foreign financial institution to do business with EIH, Post Bank or any other Iranian banks we have designated.  

Since June, Treasury has designated 10 IRGC-affiliated individuals and entities for facilitating Iran's nuclear and ballistic missile program or support for terrorism.  First designated by the U.S. in 2007, the IRGC is the epitome of a conduct-based sanctions target because of its range of illicit conduct – its support for terrorism, its involvement in Iran's proliferation activities, and its suppression of domestic dissent, including in the aftermath of the June 2009 election.  Since June we have also exposed and designated 53 IRISL front companies, 9 IRISL officials, identified 27 vessels as property blocked because of their connection to IRISL, and updated the entries for 71 already-blocked IRISL vessels to identify new names given to these vessels as part of IRISL's efforts to evade sanctions. 

In September, President Obama signed an Executive Order that imposes sanctions on Iranian officials determined to be responsible for or complicit in, the commission of serious human rights abuses involving Iran.  In signing the Order, the President identified for sanctions eight Iranian individuals who share responsibility for serious violation of human rights that have occurred since the June 2009 disputed presidential election.  Among those identified were IRGC officials and Iranian government ministers. 

Since June, we have also identified, pursuant to the ITR, 43 entities in the banking, investment, mining, engineering, insurance, energy, petroleum, and petrochemical industries determined to be the Government of Iran.  Many of these entities are located outside of Iran and have names that make it difficult to recognize them as Iranian government entities.  By listing these entities pursuant to the ITR, we both help U.S. persons comply with U.S. law prohibiting business with Iranian government entities and also assist private sector actors around the world that are increasingly deciding to shun business with the government of Iran. 

Global Engagement

As I noted earlier, since the adoption of UNSCR 1929, Treasury has continued its campaign of engagement regarding Iran's illicit conduct.  Over the last several months, my colleagues and I have traveled around the world to speak to governments and private sector representatives about Iran sanctions issues, including CISADA.  By the end of this week, we will have visited 24 countries – Belgium, Denmark, France, Germany, Switzerland, the Netherlands, Brazil, Ecuador, Japan, China, South Korea, Armenia, Azerbaijan, Georgia, Pakistan, Lebanon, Turkey, Iraq, Kuwait, Bahrain, Oman, Qatar, Saudi Arabia, and the United Arab Emirates – to discuss the risks posed by Iranian financial activity and the steps necessary to control those risks.

In particular, we have worked with our partners as they shape their own implementation of UNSCR 1929 and we have sought to educate both governments and the private sector – including scores of foreign banks – on CISADA.  CISADA is a powerful tool and we do not want international financial institutions to be surprised by the potential consequences that flow from it.  The responses we have received from foreign regulators and financial institutions in the course of this outreach have been overwhelmingly positive, and it is clear that the provisions of UNSCR 1929 and CISADA are being taken seriously.

The Impact of Sanctions

In the course of our travels, we have encountered a growing number of financial institutions, driven by increased awareness of Iran's illicit and deceptive conduct, that are shying away from doing any kind of business with Iran.  Many institutions have simply stopped dealing with Iranian banks altogether, in light of Iran's established history of using deceptive financial practices to mask the real nature of, or the true parties involved in, their transactions. 

As a direct result, Iran has become increasingly isolated from the international financial system, with limited access to financial services.  And, without access to financial services, it becomes difficult to conduct commercial transactions of all kinds.  Just a few years ago, Iran was able to access financial services from the world's largest and most prestigious financial institutions.  Today, by contrast, Iran has been relegated to the margins of the international financial system, and is finding it increasingly difficult to access the large-scale, sophisticated financial services necessary to run a modern economy efficiently. 

The movement away from business with Iran has not been restricted to the financial services sector.  Companies from many industries, including manufacturing, automobile, insurance, engineering, and accounting, have similarly announced the withdrawal of business from Iran.  Many foreign energy companies have also withdrawn their investments in Iranian petroleum projects, and have pulled out of joint ventures with Iranian energy companies.  Some European and Middle Eastern companies have even stopped providing jet fuel to Iran's national air carrier in Europe.  Iran is finding it more difficult to import refined petroleum products and is being forced to make tough domestic trade-offs to fill the gap.  And Iran is increasingly unable to secure the foreign investment, financing, and technology it needs to modernize its aging energy infrastructure, threatening its oil and gas production and export capacity over the long term.  The Iranian economy depends on energy revenues, and the continued stagnation, or decline, of energy outputs will adversely affect Iran's economic stability.

The Iranian leadership's inability to develop its most important industry could have long-term political as well as economic consequences as Iran struggles to create jobs for its disproportionately young population.  Unemployment is currently 12 percent, even according to unreliable official estimates; Iran's parliament has claimed that it is as high as 22 percent.  People under age 30 account for three out of four unemployed Iranians.  

The degradation of Iran's access to the international financial system has also made it very difficult for Iran to make payments on loans and maintain insurance coverage on IRISL ships, which is having an impact on the shipping company's ability to continue operations.  Just a few months ago, Credit Agricole Corporate & Investment Bank seized three IRISL ships in Singapore to recover $110 million on a $235 million loan arranged in 2006 to finance ships ordered by IRISL.  According to news reports, the bank claimed that IRISL breached its loan covenants, particularly its obligation to maintain insurance.

Iran is poorly positioned to respond to the impact of sanctions and, as the leadership tries to formulate a response, it is faced with unappealing choices.  As an example, in part because it is encountering difficulties in acquiring refined gasoline because of sanctions, the government is seeking ways to reduce domestic demand for gasoline.  One obvious step would be to reduce the heavy subsidies on gasoline that now make the price at the pump about 37 cents per gallon.  Iran recently announced that it would reduce subsidies on gasoline and other household and energy products by $20 billion.  The government, however, has hesitated to go forward with these subsidy cuts most likely because of concern about popular backlash.  They have even deployed security forces to try to enforce order and President Ahmadinejad has even threatened to severely punish businesses that raise prices of consumer goods in reaction to subsidy cuts.  Additionally, fears that inflation could accelerate surrounding government implementation of subsidy reform, combined with increased barriers to Iranian banks and currency exchanges accessing dollars as a result of the implementation of recent sanctions, were likely the cause of the sudden near-20% depreciation of the Iranian rial on market exchanges in late September.  The Central Bank of Iran was slow to respond to these pressures, and it took weeks of intervention to stabilize volatility in the rial market exchange rate.

Because of consistent pressure from sanctions over recent years and difficulties in attracting foreign sources of investment, the Iranian government is increasingly turning to the IRGC to maintain its hold on political power and for key economic projects.  The Iranian government has turned over to the IRGC major transportation and energy sector projects, including the development of oil and gas fields.    Indeed, the IRGC is taking increasing control over significant portions of the Iranian economy, and it is doing so with the help of sole-source contracts that deprive average Iranians of economic opportunity. 

The IRGC itself is, of course, a key target of U.S. and international sanctions, which means that Iranian government reliance on the IRGC will only deepen Iran's isolation.  For example, because Iran could not attract a suitable foreign energy firm to develop phases of the South Pars gas field, Iran gave the opportunity to Khatam al-Anbiya, an IRGC-controlled company.  However, Khatam al-Anbiya lacked the capability to develop the project itself.  Because of its inability to develop this project without foreign partners, Khatam al-Anbiya was forced to withdraw from the project following designations by the U.S., then the EU, and finally by the UN.  Using the IRGC to fill its investment gap will thus only make matters worse for Iran.  The UN Security Council has now designated most of the major companies controlled by the IRGC and many of its senior officers for proliferation, and the EU, Japan, South Korea, and of course the United States, have also designated the IRGC in its entirety.  The example of Khatam al-Anbiya is representative of our conduct-based strategy at work:  As Iran is forced to rely on entities that have been exposed for bad conduct, it will find its options increasingly limited and will have greater difficulty coping with sanctions.

We believe that the speed, scope, and impact of sanctions have caught the regime by surprise.  There are clear signs that the Iranian leadership is worried about the impact of these measures and is taking sanctions seriously. Earlier this fall, a high-ranking Iranian official warned against dismissing international sanctions as a "joke," saying the Islamic republic was facing its worst ever "assault" from the global community.  As the pressure on Iran has increased, so has internal criticism and questioning of President Ahmadinejad and others for their handling of Iran's response to sanctions.

Conclusion

As a result of the international community's recent sanctions measures, including CISADA, and of our efforts to publicize Iran's illicit and deceptive conduct, Iran is feeling the pressure of sanctions as never before.  Iran is struggling to find access to the international financial system, without which it is difficult to run an economy on the scale that a country like Iran needs.

While we believe that sanctions are having a real impact, we are also confident that Iran will continue to engage in illicit activity, and to employ deceptive conduct to mask that activity and otherwise evade sanctions.  The examples I discussed earlier of Post Bank, IRISL, and the weapons shipment seized by Nigeria are only three examples of Iran's well-established practice of trying to evade sanctions.  While our strategy was designed to account for Iran's attempts at evasion and we have been aggressive in highlighting and stopping such activities, we cannot afford to let up.  In September, a high-ranking Iranian government official underscored exactly the effect we have tried to create when he said that "we have never had such intensified sanctions and they are getting more intensified every day.  Whenever we find a loophole, they block it."  In order to maintain this atmosphere, we must continue to actively seek out, publicly expose, and shut down Iran's efforts at evasion.  We must also try to use Iran's deception to our advantage to forge an ever-more determined coalition to curtail Iran's illicit conduct.  

In order to maintain and even increase the impact we have created so far, we need to remain vigilant and intensify our efforts.  By doing so, we can continue to create the leverage needed for our diplomacy to be effective.  I look forward to continuing our work with this Committee to achieve that goal.

###

December 1, 2010
TG-984

Written Testimony of Chief of Homeownership Preservation Office Phyllis Caldwell Before the Senate Committee on Banking, Housing and Urban Affairs

"Problems of Mortgage Servicing From Modification to Foreclosure"

Chairman Dodd, Ranking Member Shelby, and Members of the Committee, thank you for the opportunity to testify today regarding issues surrounding mortgage servicing.  This testimony will cover two key areas: first, the steps we are taking to ensure that servicers participating in the Making Home Affordable (MHA) program are adhering to program guidelines in light of the recent foreclosure issues, and second, the accomplishments of MHA to date and its impact on mortgage servicing.

The reports of "robo-signing", faulty documentation and other improper foreclosure practices by mortgage servicers are unacceptable.  If servicers have failed to comply with the law, they should be held accountable.  The Administration is leading a coordinated interagency effort to investigate misconduct, protect homeowners and mitigate any long-term effects on the housing market.  While Treasury does not have the authority to regulate the foreclosure practices of financial institutions, nor to ensure that those practices conform to the law, it is working closely with agencies that do have such authority.

The Financial Fraud Enforcement Task Force, a broad coalition of law enforcement, investigatory, and regulatory agencies that brings together more than 20 federal agencies, 94 U.S. Attorneys Offices, and dozens of state and local partners, is working to ensure that foreclosure practices are thoroughly investigated and any criminal behavior is prosecuted.  The Federal Housing Administration (FHA) has been reviewing servicers of loans it insures for compliance with loss mitigation requirements.  Additionally, the Office of the Comptroller of the Currency has directed all large national bank servicers to review their foreclosure management processes – including file reviews, affidavit processing, and signatures – to ensure that the processes are fully compliant with all applicable state laws.  The other independent banking regulatory agencies are doing similar reviews of institutions under their jurisdiction.  Attached to my testimony is a fact sheet providing more detail concerning the activities of the coordinated interagency effort.    

Because MHA and its first lien program, the Home Affordable Modification Program (HAMP), are pre-foreclosure programs, the recent reports of robo-signing of affidavits and improper foreclosure documentation do not directly affect the implementation of HAMP.  But these documentation failures reflect the fact that servicers did not have the proper resources in place, nor did they have procedures and controls in place to prevent this crisis.  As we have learned in implementing HAMP, servicers were historically structured and staffed to perform a limited role--primarily collecting payments.  They did not have the systems, staffing, operational capacity or incentives to engage with homeowners on a large scale and offer meaningful relief from unaffordable mortgages. 

The foreclosure problems underscore the continued critical importance of the Making Home Affordable Program launched by the Obama Administration.  Preventing avoidable foreclosures through modifications and other alternatives to foreclosure continues to be a critical national priority.  Foreclosure is painful for homeowners; it is also costly to servicers and investors.  Foreclosures dislocate families, disrupt the communities, and destabilize local housing markets. For this reason, the Obama Administration launched the Making Home Affordable program in the spring of 2009, of which HAMP is a key component.  HAMP is intended to prevent avoidable foreclosures by providing financial incentives to servicers, investors and borrowers to voluntarily undertake modifications of mortgages for responsible homeowners in a way that is affordable and sustainable over time.  In cases where a modification is not possible, the participating servicers must consider other alternatives to foreclosure.  

As a result, throughout the last 20 months, we have worked to develop systems and procedures to ensure that responsible homeowners are offered meaningful modifications and other foreclosure alternatives.  To remedy servicer shortcomings, we have urged servicers to rapidly increase staffing and improve customer service.  We have developed specific guidelines and certifications on how and when borrowers must be evaluated for HAMP and other loss mitigation options prior to foreclosure initiation.  We have also continued our compliance efforts to ensure borrowers are fairly evaluated and that servicers conduct their operations in accordance with Treasury guidelines. MHA has strong compliance mechanisms in place to ensure that servicers follow our program's guidelines.  

HAMP Procedural Safeguards and Compliance Efforts

Treasury has built numerous procedural safeguards in HAMP to avoid foreclosure sales.  Specifically, program guidelines require participating mortgage servicers of non-GSE loans to:

• Evaluate homeowners for HAMP modifications before referring them for foreclosure. The focus here is on early intervention. Servicers must reach out to all potentially eligible borrowers when they are only two months delinquent and there is a still a viable opportunity to save the loan;
• Suspend any foreclosure proceedings against homeowners who have applied for HAMP modifications, while their applications are pending; 
• Evaluate whether homeowners who do not qualify for HAMP (or who have fallen out of HAMP) qualify for alternative loss mitigation programs or private modification programs; 
• Evaluate whether homeowners who cannot obtain alternative modifications may qualify for a short sale or deed-in-lieu of foreclosure; and
• Provide a written explanation to any borrower who is not eligible for modification and delay foreclosure for at least 30 days to give the homeowner time to appeal. 

Servicers may not proceed to foreclosure sale unless and until they have tried these alternatives.  They must also first issue a written certification to their foreclosure attorney or trustee stating that "all available loss mitigation alternatives have been exhausted and a non-foreclosure option could not be reached."  On October 6, Treasury clearly reminded servicers of non-GSE loans of this existing requirement that they are prohibited from conducting foreclosure sales until these pre-foreclosure certifications are executed.  It should be noted that the GSEs have similar guidelines for their HAMP modifications.

The MHA compliance program is designed to ensure that servicers are meeting their obligations under the MHA servicer contracts for loans where Fannie Mae or Freddie Mac is not the investor, and uses a variety of compliance activities to assess servicers from different perspectives.  Treasury has engaged a separate division of Freddie Mac, Making Home Affordable-Compliance (MHA-C), to perform these compliance activities.  Employing a risk-based approach, compliance activities are performed ranging generally monthly for servicers with the largest percentages of potentially eligible borrowers, to at least twice annually for the smaller-sized servicers. 

Our compliance activities focus on ensuring that homeowners are appropriately treated in accordance with MHA guidelines.  As the program has evolved, servicers have adapted their processes to incorporate MHA programs.  Treasury has implemented non-financial remedies that have shaped servicer behavior in order to address the most vital issue: the ultimate impact on the homeowner. 

As information regarding irregularities in servicer foreclosure practices arose, Treasury acted swiftly and instructed MHA-C to review the ten largest servicers' internal policies and procedures for completing these pre-foreclosure certifications before initiating the foreclosure proceedings, and to assess a limited sample of foreclosure sales that have occurred since the effective date of the guidance.  The results of the review are not yet available.  However, if MHA-C identifies any incidents of non-compliance with HAMP guidelines, Treasury will direct servicers to take appropriate corrective action, which may include suspending foreclosure proceedings and re-evaluating the affected homeowners for HAMP, as well as undertaking changes to servicing processes to help ensure that HAMP guidelines are followed prior to initiating the foreclosure process. 

HAMP's Accomplishments and Its Impact on the Mortgage Industry

To date, HAMP has achieved three critical goals: it has provided immediate relief to many struggling homeowners; it has used taxpayer resources efficiently; and it has helped transform the way the entire mortgage servicing industry operates. 

Twenty months into the program, close to 1.4 million homeowners have entered into HAMP trials and experienced temporary reductions in their mortgage payments.  Of these, almost 520,000 homeowners converted to permanent modifications.  These homeowners are experiencing a 36 percent median reduction in their mortgage payments--averaging more than $500 per month--amounting to a total, program-wide savings of nearly $3.7 billion annually for homeowners. 

Early indications suggest that the re-default rate for permanent HAMP modifications is significantly lower than for historical private-sector modifications--a result of the program's focus on properly aligning incentives and achieving greater affordability.  For HAMP modifications made in the fourth quarter of 2009, at six months, fewer than 10 percent of permanent modifications are 60+ days delinquent.  According to the OCC's Mortgage Metrics Report, the comparable delinquency rates for non-HAMP modifications made in the same quarter were 22.4 percent.  Regarding HAMP re-defaults, the OCC states, "These lower early post-modification delinquency rates may reflect HAMP's emphasis on the affordability of monthly payments and the requirements to verify income and complete a successful trial period."

Borrowers who do not ultimately qualify for HAMP modifications often receive alternative forms of assistance.  Based on survey data from the eight largest servicers, approximately one-half of homeowners who apply for HAMP modifications but do not qualify have received some form of private-sector modification.  Less than ten percent have lost their homes through foreclosure sales. 

HAMP uses taxpayer resources efficiently. HAMP's "pay-for-success" design utilizes a trial period to ensure that taxpayer-funded incentives are used only to support borrowers who are committed to staying in their homes and making monthly payments, and the investor retains the risk of the borrower re-defaulting into foreclosure.  No taxpayer funds are paid to a servicer or an investor until a borrower has made three modified mortgage payments on time and in full.  The majority of payments are made over a three to five-year period only if the borrower continues to fulfill this responsibility.  These safeguards ensure that spending is limited to high-quality modifications. 

MHA Has Been a Catalyst--Setting the Benchmark for Sustainable Modifications

MHA has transformed the way the mortgage servicing industry deals with alternatives to foreclosure.  Because of MHA, servicers have developed constructive private-sector options.  Where there was once no consensus plan among loan servicers about how to respond to borrowers in need of assistance, HAMP established a universal affordability standard:  a 31 percent debt-to-income ratio, which dramatically enhanced servicers' ability to reduce mortgage payments to sustainable levels while simultaneously providing the necessary justification to investors for the size and type of modification. 

In the year following initiation of HAMP, home retention strategies changed dramatically.  According to the OCC/ OTS Mortgage Metrics Report, in the first quarter of 2009, nearly half of mortgage modifications increased borrowers' monthly payments or left their payments unchanged.  By the second quarter of 2010, 90 percent of mortgage modifications lowered payments for the borrower.  This change means borrowers are receiving better solutions.  Modifications with payment reductions perform materially better than modifications that increase payments or leave them unchanged.

Moreover, even holding the percentage payment reduction constant, the quality of modifications made by servicers appears to have improved since 2008.  For modifications made in 2008, 15.8 percent of modifications that received a 20 percent payment reduction were 60 days or more delinquent three months into the modification.  For modifications made in 2010, that delinquency rate has fallen almost in half, to 8.2 percent.  The OCC's Mortgage Metrics Report from 2010:Q2 attributes the improvement in mortgage performance to "servicer emphasis on repayment sustainability and the borrower's ability to repay the debt."

Spurred by the catalyst of the HAMP program, the number of modification arrangements was nearly three times greater than the number of foreclosure completions between April 2009 and August 2010.  More than 3.7 million modification arrangements were started, including the close to 1.4 million trial HAMP modification starts, more than 568,000 FHA loss mitigation and early delinquency interventions, and more than 1.6 million proprietary modifications by servicing members of the HOPE NOW Alliance.

Further, it is important to keep in mind that MHA is only one of many Administration housing efforts targeting these challenges: the Administration has also provided substantial support for the housing markets through support for Fannie Mae and Freddie Mac to help keep mortgage rates affordable; purchase of agency mortgage-backed securities; and an initiative to provide support and financing to state and local Housing Finance Agencies (HFAs).  These HFAs provide, in turn, tens of thousands of affordable mortgages to first time homebuyers and help develop tens of thousands of affordable rental units for working families.

Responding to a Changing Housing Crisis

MHA was designed to be a versatile program.  MHA includes a second lien modification program, a foreclosure alternatives program that promotes short sales and deeds-in-lieu of foreclosures, and an unemployment forbearance program.  Treasury expanded HAMP to include FHA and Rural Development mortgage loans through the FHA-HAMP and RD-HAMP program, and also introduced a principal reduction option.  Finally, Treasury introduced a program to allow the hardest-hit states to tailor housing assistance to their areas, and worked with FHA to introduce an option for homeowners with high negative equity to refinance into a new FHA loan if their lender agrees to reduce principal on the original loan by at least ten percent.

Second Lien Modification Program

The Second Lien Modification Program (referred to as 2MP) requires that when a borrower's first lien is modified under HAMP and the servicer of the second lien is a 2MP participant, that servicer must offer to modify the borrower's second lien according to a defined protocol.  2MP provides for a lump sum payment from Treasury in exchange for full extinguishment of the second lien, or a reduced lump sum payment from Treasury in exchange for a partial extinguishment and modification of the borrower's remaining second lien.  Although 2MP was initially met with reluctance from servicers and investors who did not want to recognize losses on their second lien portfolios, as of October 3, 2010, Treasury has signed up seventeen 2MP servicers, which includes the four largest mortgage servicers, who in aggregate service approximately 60 percent of outstanding second liens.  The program uses a third-party database to match second lien loans with first lien loans permanently modified under HAMP.  Servicers are required to modify second lien loans within 120 days from the date the servicer receives the first lien and second lien matching information. The implementation of this database began over the summer.  Five 2MP Servicers have already begun matching modified first liens with their corresponding second liens, while the other twelve are in some phase of developing systems capacity to do so.  Information on the second lien program will be included in upcoming Monthly Servicer Performance Reports as data becomes available.

Home Affordable Foreclosure Alternatives Program

Any modification program seeking to avoid preventable foreclosures has limits, HAMP included. HAMP does not, nor was it ever intended to, address every delinquent loan.  Borrowers who do not qualify for HAMP may benefit from an alternative program that helps the borrower transition to more affordable housing and avoid the substantial costs of a foreclosure.  Under HAFA, Treasury provides incentives for short sales and deeds-in-lieu of foreclosure for circumstances in which borrowers are unable to complete the HAMP modification process or decline a HAMP modification.  Borrowers are eligible for a relocation assistance payment, and servicers receive an incentive for completing a short sale or deed-in-lieu of foreclosure.  In addition, investors are paid additional incentives for allowing some short sale proceeds to be distributed to subordinate lien holders.  The Home Affordable Foreclosure Alternatives (HAFA) Program became effective on April 5, 2010.

Unemployment Program

In March 2010, the Obama Administration announced enhancements to HAMP aimed at unemployment problems by requiring servicers to provide temporary mortgage assistance to many unemployed homeowners.  The Unemployment Program (UP) requires servicers to grant qualified unemployed borrowers a forbearance period during which their mortgage payments are temporarily reduced for a minimum of three months, and up to six months for some borrowers, while they look for a new job.  Servicers are prohibited from initiating a foreclosure action or conducting a foreclosure sale (a) while the borrower is being evaluated for UP, (b) after a foreclosure plan notice is mailed, (c) during the UP forbearance or extension, or (d) while the borrower is being evaluated for or participating in HAMP or HAFA following the UP forbearance period.  UP went in to effect August 1, 2010.  Because no incentives are paid under UP, data reports will be based on servicer surveys.

Principal Reduction Alternative

The Administration announced further enhancements to HAMP in March 2010 by encouraging servicers to write down mortgage debt as part of a HAMP modification (the Principal Reduction Alternative, or PRA).  Under PRA, servicers are required to evaluate the benefit of principal reduction and are encouraged to offer principal reduction whenever the net present value (NPV) result of a HAMP modification using PRA is greater than the NPV result without considering principal reduction.  The principal reduction and the incentives based on the dollar value of the principal reduced will be earned by the borrower and investor based on a pay-for-success structure.  Under the contract with each servicer, Treasury cannot compel a servicer to select PRA over the standard HAMP modification even if the NPV of PRA is greater than the NPV of regular HAMP.  However, Treasury has required servicers to have written policies for PRA to help ensure that similarly situated borrowers are treated consistently.  The program became operational October 1, 2010 and the four largest servicers have indicated an intention to offer PRA to homeowners.

FHA Refinance

Also in March 2010, the Administration announced adjustments to existing FHA refinance programs that permit lenders to provide additional refinancing options to homeowners who owe more than their homes are worth because of large declines in home prices in their local markets.  This program, known as the FHA Short Refinance option, will provide more opportunities for qualifying mortgage loans to be restructured and refinanced into FHA-insured loans. 

In order to qualify for this program, a homeowner must be current on their existing first lien mortgage; the homeowner must occupy the home as a primary residence and have a qualifying credit score; the mortgage owner must reduce the amount owed on the original loan by at least 10 percent; the new FHA loan must have a balance of no more than 97.75% of the current value of the home; and total mortgage debt for the borrower after the refinancing, including both the first lien mortgage and any other junior liens, cannot be greater than 115% of the current value of the home – giving homeowners a path to regain equity in their homes and affordable monthly payments.  Program guidance was issued to participating FHA servicers in September 2010.

HFA Hardest-Hit Fund

On February 19, 2010, the Administration announced the Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HFA Hardest-Hit Fund) for state HFAs in the nation's hardest-hit housing markets to design innovative, locally targeted foreclosure prevention programs.  In total, $7.6 billion has been allocated to 18 states (Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, and Tennessee) and the District of Columbia under the HFA Hardest-Hit Fund.  As of November 1, 2010, four states were either accepting applications or providing assistance (Arizona, Michigan, Ohio and Rhode Island).  By the end of 2010 another three states are expected to begin providing assistance.  The remaining states are expected to begin providing assistance in the first half of 2011. 

Allocations under the HFA Hardest-Hit Fund were made using several different metrics.  Some of the funds were allocated to states that have suffered average home price drops of more than 20 percent from their peak, while other funds were allocated to states with the highest concentration of their populations living in counties with unemployment rates greater than 12 percent or unemployment rates that were at or above the national average.  In addition, some funds were allocated to all the states and jurisdictions already participating in the HFA Hardest-Hit Fund to expand the reach of their programs to help more struggling homeowners.  The applicable HFAs designed the state programs themselves, tailoring the housing assistance to their local needs.  A minimum of $2 billion of the funding is required to be used by states for targeted unemployment or under-employment programs that provide temporary assistance to eligible homeowners to help them pay their mortgages while they seek re-employment or additional employment or undertake job training.  Treasury also required that all of the programs comply with the requirements of EESA, which include that they must be designed to prevent avoidable foreclosures.  All of the funded program designs are posted online at http://www.FinancialStability.gov/roadtostability/hardesthitfund.html.

Transparency, Accountability, and Compliance

I would like to provide you with further detail regarding the compliance efforts regarding HAMP.  To protect taxpayers and ensure that TARP dollars are directed toward promoting financial stability, Treasury established rigorous transparency and accountability measures for all of its programs, including all housing programs.  In addition, every borrower is entitled to a clear explanation if he or she is determined to be ineligible for a HAMP modification.  Treasury requires servicers to report the reason for modification denials in the HAMP system of record.  MHA-C's compliance activities, through Second Look loan file reviews and other on-site assessments, evaluate the appropriateness of the denials as well as the timeliness and accuracy of the denial notification to the affected borrowers.

In order to improve transparency of the HAMP NPV model, which is a key component of the eligibility test for HAMP, Treasury increased public access to the NPV white paper, which explains the methodology used in the NPV model.  To ensure accuracy and reliability, MHA-C conducts periodic audits of servicers' NPV practices.  MHA-C conducts two types of reviews related to NPV.  For those servicers that have re-coded the requirements of the NPV model in their processing systems, MHA-C conducts on-site and off-site reviews of model accuracy, model management, and data integrity and inputs.  For those servicers using the MHA Servicer Portal, MHA-C conducts reviews of data integrity and inputs.  Where non-compliance is found, Treasury requires servicers to take remedial actions, which can include re-evaluating borrowers with appropriate inputs, process changes, corrections to recoded NPV implementations, and, for servicers who have re-coded the NPV model, reverting back to the MHA Servicer Portal for loans with negative NPV results from the servicers' re-coded NPV model until necessary corrections have been re-evaluated by MHA-C.  In addition, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, Treasury is preparing to establish a web portal that borrowers can access to run a NPV analysis using input data regarding their own mortgages, and to provide to borrowers who are turned down for a HAMP modification the input data used in evaluating the application.

As stated above, servicers are subject to various other compliance activities, including periodic, on-site compliance reviews as well as on-site and off-site loan file reviews.  These various compliance activities performed by MHA-C assess servicers' compliance with HAMP requirements.  Treasury works closely with MHA-C to adapt and execute our risk based compliance activities quickly based on changes in the program as well as observed trends.  The current assessment of the top ten servicers' adherence to our pre-foreclosure certifications and requirements is one example of how we adapt our compliance activities.  MHA-C provides Treasury with the results from each of the various compliance activities conducted.  Treasury performs quality reviews of these activities and evaluates the nature and scope of any instances of non-compliance, and assesses appropriate responses, including remedies, in a consistent manner.  As stated earlier, during the beginning of the program, and as additional features (e.g., the Second Lien Program) are introduced, Treasury's compliance activities and associated remedies focus on shaping servicers' behavior and improving processes as servicers ramp up or modify their implementation of HAMP.  As the program and servicers' processes mature, financial remedies may become more appropriate and effective in reinforcing Treasury's compliance and performance expectations.   

Looking Ahead for Housing

Servicers need to increase efforts in helping borrowers avoid foreclosure through modification, as well as other alternatives to foreclosure, such as short sales.  Furthermore, as we have learned through HAMP, servicers must be held accountable for ensuring that their foreclosure processes have integrity and are used after all loss mitigation options have been exhausted.  Treasury's main priority is to ensure that first, participating servicers are doing everything that they can to reach, evaluate, and start borrowers into HAMP modifications, second, if a HAMP modification is not possible, every servicer is properly evaluating each homeowner for all other potential options to prevent a foreclosure, including HAFA or one of their own  modification programs, and third, servicers are utilizing programs such as UP or the HFA Hardest-Hit Fund to their fullest ability in order to prevent avoidable foreclosures. 

Over the past 20 months, we have been actively engaged with stakeholders from across the housing sector to find ways to increase the pace of new HAMP modifications, improve the characteristics of those modifications, and improve the borrower experience.  We sincerely appreciate the assistance that we have gotten from Members of Congress and the advocacy community in strengthening borrower protections, incentivizing principal reduction, and assisting the unemployed.  And most importantly, we value the efforts that Members of Congress, counselors and advocates have made in holding servicers accountable.   

Yet, as we deploy a comprehensive suite of loss mitigation options, we must remember, as the President noted, not every foreclosure can be prevented.  Any broad-based solution must aim at achieving both an efficient and equitable allocation of resources.  This means a balance must be struck between affording homeowners opportunities to avoid foreclosure while expeditiously easing the transition in those cases where homeownership is not an economically sustainable alternative.  This is especially important in order to lay the foundation for future appreciation which will provide a meaningful path to sustainable homeownership.   

In the coming months, we will begin to see the impacts of the newly launched MHA programs.  These programs will reach more distressed homeowners and provide additional stability to the housing market going forward.  In much the same way that HAMP's first lien modification program has provided a national blueprint for mortgage modifications, these new programs will continue to shape the mortgage servicing industry and act as a catalyst for industry standardization of short sale, refinance and principal reduction programs.  The interplay of all these programs will provide a much more flexible response to changes in the housing market over the next two years.

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November 30, 2010
TG-982

U.S., Panama Sign New Tax Information Exchange Agreement

WASHINGTON – In a ceremony at the U.S. Department of the Treasury today, Treasury Secretary Tim Geithner and Panamanian Vice President and Minister of Foreign Affairs Juan Carlos Varela signed a new tax information exchange agreement (TIEA) between the United States and Panama.

"Today, we are ushering in a new era of openness and transparency for tax information between the United States and Panama" Secretary Geithner said.  "This bilateral agreement to provide for the exchange of tax information between our two countries reflects the commitment of the United States and Panama to the importance of transparency of tax information."

Upon entry into force, the new TIEA will provide the United States with access to the information it needs to enforce U.S. tax laws, including information related to bank accounts in Panama. 

The TIEA will permit the United States and Panama to seek information from each other on all types of national taxes in both civil and criminal matters for tax years beginning on or after November 30, 2007.  Information exchanged pursuant to the TIEA shall be used for tax purposes, although the information may also be used for other purposes as permitted under the the provisions of the Treaty on Mutual Legal Assistance in Criminal Matters between the United States and Panama as long as the tax authorities of the country providing the information consents to such use in writing.  

The full text of the TIEA and the TIEA Joint Declaration can be viewed at the links below.

###

LINKS

• U.S., Panama Tax Information Exchange Agreement
• U.S., Panama TIEA Joint Declaration

November 30, 2010
TG-981

Treasury Targets Corporate Structures of the Islamic Republic of Iran Shipping Lines and Iran’s Bank Mellat

WASHINGTON – The U.S. Department of the Treasury announced today the designations of five corporate officers and 10 businesses affiliated with either the Islamic Republic of Iran Shipping Lines (IRISL) or Bank Mellat, two entities previously designated by Treasury for supporting Iran's weapons of mass destruction (WMD) program and carrying military cargoes.  Designated today were Pearl Energy Company, a Malaysian-based entity owned by a subsidiary of Bank Mellat, its Director Ali Afzali, as well as Pearl Energy Services, SA, a wholly-owned subsidiary of Pearl Energy Company.  Treasury also designated four top IRISL executives; and eight IRISL front companies located on the Isle of Man.  Today's designations were taken pursuant to Executive Order (E.O.) 13382, which targets for sanctions  proliferators of weapons of mass destruction (WMD) and their supporters, thereby isolating them from the U.S. financial and commercial systems.

"As long as Iran uses front companies, cut-outs and other forms of deception to hide its illicit activities, we intend to expose this conduct and thereby counteract Iran's attempts to evade U.S. and international sanctions," said Under Secretary for Terrorism and Financial Intelligence Stuart Levey.  "Today's actions will help governments, banks and other private companies around the world ensure that they do not inadvertently facilitate Iran's proliferation and support for terrorism." 

Bank Mellat Subsidiaries

Pearl Energy Company was formed by First East Export Bank (FEEB), a previously designated subsidiary of Iran's Bank Mellat, to provide economic research on an array of global industries. Treasury designated Pearl Energy Company today for being owned or controlled by and acting for or on behalf of FEEB.  FEEB's Director and Principal Officer, Ali Afzali, was designated for acting for or on behalf of both FEEB and Bank Mellat. Afzali is also on Pearl Energy Company's board of directors and holds a major stake in the Pearl Energy Company.

Switzerland-based Pearl Energy Services, SA, was designated today for being owned or controlled by Pearl Energy Company. Pearl Energy Services is wholly owned by Pearl Energy Company; its mission is to provide financing and expertise to entities seeking to enter Iran's petroleum sector.

FEEB was designated by Treasury in November 2009 for being owned or controlled by Bank Mellat, which was itself designated pursuant to E.O. 13382 in October 2007 for its role in providing financial services to the Atomic Energy Organization of Iran (AEOI) and Novin Energy Company (Novin). The United Nations (UN) Security Council later designated FEEB in UN Security Council Resolution (UNSCR) 1929 in June 2010.

IRISL Front Companies and Top Executives

Following its September 2008 designation under E.O. 13382 for its provision of logistical services to Iran's Ministry of Defense and Armed Forces Logistics, the arm of the Iranian military that oversees its ballistic missile program, IRISL has increasingly created and relied upon a series of front companies and has engaged in deceptive behavior to evade the impact of sanctions and increased scrutiny of its activities.  Today's designations further target IRISL's worldwide network of front companies, subsidiaries, affiliates and its corporate executives.

The IRISL front companies designated today were:  Ashtead Shipping Company Limited, Byfleet Shipping Company Limited, Cobham Shipping Company Limited, Dorking Shipping Company Limited, Effingham Shipping Company Limited, Farnham Shipping Company Limited, Gomshall Shipping Company Limited, and Horsham Shipping Company Limited – all located in the Isle of Man. Each company is wholly-owned by IRISL and each is the registered owner of a vessel previously identified on Treasury's Specially Designated Nationals List as blocked property of IRISL or an IRISL-affiliated company.  The director of all eight front companies, Ahmad Sarkandi, was designated by Treasury in October 2010 for providing services to several IRISL-affiliated companies.

Mohhammad Hossein Dajmar, designated today, is Chairman and Managing Director of IRISL and three previously-designated front companies – Safiran Payam Darya Shipping Company (SAPID), Hafiz Darya Shipping Company (HDS), and Soroush Sarzamin Asatir Ship Management Company (SSA).  Also designated today are Gholamhossein Golparvar, Managing Director of SAPID and a director of SSA and HDS, as well as Hassan Jalil Zadeh, Managing Director of HDS.  Finally, Mohammad Hadi Pajand, Company Secretary of Irinvestship Ltd., and a company director of Lancelin Shipping Company Ltd. – two previously-designated IRISL affiliates – was also designated by Treasury today.

Including today's action, Treasury has designated nearly 80 IRISL front companies and affiliates and has identified more than 100 ships as being the property of IRISL or its front companies and affiliates.

Identifying Information:

Individual:                  AFZALI, ALI
DOB:                          July 1, 1967

Entity:                         PEARL ENERGY COMPANY LTD
Address:                      Level 13(E) Main Office Tower, Jalan Merdeka, Financial Park Complex, Labuan, 87000, Malaysia

Entity:                         PEARL ENERGY SERVICES, SA
Address:                      15 Avenue de Montchoisi, Lausanne, 1006 VD, Switzerland

Individual:                  Mohhammad Hossein DAJMAR
AKA:                          Mohammad Hossein DAJMAR
DOB:                          February 19, 1956
Iranian Passport:         K13644698, expires May 16, 2013

Individual:                  Gholam Hossein GOLPARVAR
AKA:                          Gholamhossein GOLPARVAR
DOB:                          January 23, 1957
Iranian Passport:         U14643027, expires November 11, 2013

Individual:                  Hassan Jalil ZADEH
AKA:                         Hassan JALILZADEH
DOB:                          January 26, 1959
Iranian Passport:         A1508382, expired February 24, 2010

Individual:                  Mohammad Hadi PAJAND
DOB:                          May 28, 1950
Address:                      73 Blair Court, Boundary Road, London, NW8 6NT, United Kingdom

Entity:                         ASHTEAD SHIPPING COMPANY LIMITED
Address:                      Manning House, 21 Bucks Road, Douglas IM1 3DA, Isle of Man

Entity:                         BYFLEET SHIPPING COMPANY LIMITED
Address:                      Manning House, 21 Bucks Road, Douglas IM1 3DA, Isle of Man

Entity:                         COBHAM SHIPPING COMPANY LIMITED
Address:                      Manning House, 21 Bucks Road, Douglas IM1 3DA, Isle of Man

Entity:                         DORKING SHIPPING COMPANY LIMITED
Address:                      Manning House, 21 Bucks Road, Douglas IM1 3DA, Isle of Man

Entity:                         EFFINGHAM SHIPPING COMPANY LIMITED
Address:                      Manning House, 21 Bucks Road, Douglas IM1 3DA, Isle of Man

Entity:                         FARNHAM SHIPPING COMPANY LIMITED
Address:                      Manning House, 21 Bucks Road, Douglas IM1 3DA, Isle of Man

Entity:                         GOMSHALL SHIPPING COMPANY LIMITED
Address:                      Manning House, 21 Bucks Road, Douglas IM1 3DA, Isle of Man

Entity:                         HORSHAM SHIPPING COMPANY LIMITED
Address:                      Manning House, 21 Bucks Road, Douglas IM1 3DA, Isle of Man  

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November 26, 2010
2010-11-26-16-27-38-3591

U.S. International Reserve Position

The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S. reserve assets totaled $134,371 million as of the end of that week, compared to $136,426 million as of the end of the prior week.

I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)

 

 

 

 

November 12, 2010

A. Official reserve assets (in US millions unless otherwise specified) 1

 

 

134,371

(1) Foreign currency reserves (in convertible foreign currencies)

Euro

Yen

Total

(a) Securities

9,685

15,763

25,448

of which: issuer headquartered in reporting country but located abroad

 

 

0

(b) total currency and deposits with:

 

 

 

(i) other national central banks, BIS and IMF

14,405

7,746

22,150

ii) banks headquartered in the reporting country

 

 

0

of which: located abroad

 

 

0

(iii) banks headquartered outside the reporting country

 

 

0

of which: located in the reporting country

 

 

0

 

 

(2) IMF reserve position 2

13,046

 

 

(3) SDRs 2

58,642

 

 

(4) gold (including gold deposits and, if appropriate, gold swapped) 3

11,041

--volume in millions of fine troy ounces

261.499

 

 

(5) other reserve assets (specify)

5,045

--financial derivatives

 

--loans to nonbank nonresidents

 

--other (foreign currency assets invested through reverse repurchase agreements)

5,045

B. Other foreign currency assets (specify)

 

--securities not included in official reserve assets

 

--deposits not included in official reserve assets

 

--loans not included in official reserve assets

 

--financial derivatives not included in official reserve assets

 

--gold not included in official reserve assets

 

--other

 

 

 

 

II. Predetermined short-term net drains on foreign currency assets (nominal value)

 

 

 

 

 

 

 

 

 

Maturity breakdown (residual maturity)

 

Total

Up to 1 month

More than 1 and up to 3 months

More than 3 months and up to 1 year

1. Foreign currency loans, securities, and deposits

 

 

 

 

--outflows (-)

Principal

 

 

 

 

 

Interest

 

 

 

 

--inflows (+)

Principal

 

 

 

 

 

Interest

 

 

 

 

2. Aggregate short and long positions in forwards and futures in foreign currencies vis-à-vis the domestic currency (including the forward leg of currency swaps)

 

 

 

 

(a) Short positions ( - ) 4

 -60

 -60

 

 

(b) Long positions (+)

 

 

 

 

3. Other (specify)

 

 

 

 

--outflows related to repos (-)

 

 

 

 

--inflows related to reverse repos (+)

 

 

 

 

--trade credit (-)

 

 

 

 

--trade credit (+)

 

 

 

 

--other accounts payable (-)

 

 

 

 

--other accounts receivable (+)

 

 

 

 

 

 

 

 

 

 

 

III. Contingent short-term net drains on foreign currency assets (nominal value)

 

 

 

 

 

 

 

 

Maturity breakdown (residual maturity, where applicable)

 

Total

Up to 1 month

More than 1 and up to 3 months

More than 3 months and up to 1 year

1. Contingent liabilities in foreign currency

 

 

 

 

(a) Collateral guarantees on debt falling due within 1 year

 

 

 

 

(b) Other contingent liabilities

 

 

 

 

2. Foreign currency securities issued with embedded options (puttable bonds)

 

 

 

 

3. Undrawn, unconditional credit lines provided by:

 

 

 

 

(a) other national monetary authorities, BIS, IMF, and other international organizations

 

 

 

 

--other national monetary authorities (+)

 

 

 

 

--BIS (+)

 

 

 

 

--IMF (+)

 

 

 

 

(b) with banks and other financial institutions headquartered in the reporting country (+)

 

 

 

 

(c) with banks and other financial institutions headquartered outside the reporting country (+)

 

 

 

 

Undrawn, unconditional credit lines provided to:

 

 

 

 

(a) other national monetary authorities, BIS, IMF, and other international organizations

 

 

 

 

--other national monetary authorities (-)

 

 

 

 

--BIS (-)

 

 

 

 

--IMF (-)

 

 

 

 

(b) banks and other financial institutions headquartered in reporting country (- )

 

 

 

 

(c) banks and other financial institutions headquartered outside the reporting country ( - )

 

 

 

 

4. Aggregate short and long positions of options in foreign currencies vis-à-vis the domestic currency

 

 

 

 

(a) Short positions

 

 

 

 

(i) Bought puts

 

 

 

 

(ii) Written calls

 

 

 

 

(b) Long positions

 

 

 

 

(i) Bought calls

 

 

 

 

(ii) Written puts

 

 

 

 

PRO MEMORIA: In-the-money options 11

 

 

 

 

(1) At current exchange rate

 

 

 

 

(a) Short position

 

 

 

 

(b) Long position

 

 

 

 

(2) + 5 % (depreciation of 5%)

 

 

 

 

(a) Short position

 

 

 

 

(b) Long position

 

 

 

 

(3) - 5 % (appreciation of 5%)

 

 

 

 

(a) Short position

 

 

 

 

(b) Long position

 

 

 

 

(4) +10 % (depreciation of 10%)

 

 

 

 

(a) Short position

 

 

 

 

(b) Long position

 

 

 

 

(5) - 10 % (appreciation of 10%)

 

 

 

 

(a) Short position

 

 

 

 

(b) Long position

 

 

 

 

(6) Other (specify)

 

 

 

 

(a) Short position

 

 

 

 

(b) Long position

 

 

 

 

 

IV. Memo items

 

 

 

(1) To be reported with standard periodicity and timeliness:

 

(a) short-term domestic currency debt indexed to the exchange rate

 

(b) financial instruments denominated in foreign currency and settled by other means (e.g., in domestic currency) 

 

--nondeliverable forwards

 

   --short positions

 

   --long positions

 

--other instruments

 

(c) pledged assets

 

--included in reserve assets

 

--included in other foreign currency assets

 

(d) securities lent and on repo

5,147

--lent or repoed and included in Section I

 

--lent or repoed but not included in Section I

 

--borrowed or acquired and included in Section I

 

--borrowed or acquired but not included in Section I

5,147

(e) financial derivative assets (net, marked to market)

 

--forwards

 

--futures

 

--swaps

 

--options

 

--other

 

(f) derivatives (forward, futures, or options contracts) that have a residual maturity greater than one year, which are subject to margin calls.

 

--aggregate short and long positions in forwards and futures in foreign currencies vis-à-vis the domestic currency (including the forward leg of currency swaps)

 

(a) short positions ( – )

 

(b) long positions (+)

 

--aggregate short and long positions of options in foreign currencies vis-à-vis the domestic currency

 

(a) short positions

 

(i) bought puts

 

(ii) written calls

 

(b) long positions

 

(i) bought calls

 

(ii) written puts

 

(2) To be disclosed less frequently:

 

(a) currency composition of reserves (by groups of currencies)

52,643

--currencies in SDR basket

52,643

2--currencies not in SDR basket

 

--by individual currencies (optional)

 

 

 

Notes:

1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and deposits reflect carrying values. 

2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month end. 

3/  Gold stock is valued monthly at $42.2222 per fine troy ounce.

4/ The short positions reflect foreign exchange acquired under reciprocal currency arrangements with certain foreign central banks.  The foreign exchange acquired is not included in Section I, "official reserve assets and other foreign currency assets," of the template for reporting international reserves.  However, it is included in the broader balance of payments presentation as "U.S. Government assets, other than official reserve assets/U.S. foreign currency holdings and U.S. short-term assets."

November 26, 2010
2010-11-26-15-27-38-3591

U.S. International Reserve Position

The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S. reserve assets totaled $136,426 million as of the end of that week, compared to $136,117 million as of the end of the prior week.

I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)

 

 

 

 

November 5, 2010

A. Official reserve assets (in US millions unless otherwise specified) 1

 

 

136,426

(1) Foreign currency reserves (in convertible foreign currencies)

Euro

Yen

Total

(a) Securities

9,932

15,978

25,910

of which: issuer headquartered in reporting country but located abroad

 

 

0

(b) total currency and deposits with:

 

 

 

(i) other national central banks, BIS and IMF

14,754

7,849

22,603

ii) banks headquartered in the reporting country

 

 

0

of which: located abroad

 

 

0

(iii) banks headquartered outside the reporting country

 

 

0

of which: located in the reporting country

 

 

0

 

 

(2) IMF reserve position 2

13,233

 

 

(3) SDRs 2

58,471

 

 

(4) gold (including gold deposits and, if appropriate, gold swapped) 3

11,041

--volume in millions of fine troy ounces

261.499

 

 

(5) other reserve assets (specify)

5,167

--financial derivatives

 

--loans to nonbank nonresidents

 

--other (foreign currency assets invested through reverse repurchase agreements)

5,167

B. Other foreign currency assets (specify)

 

--securities not included in official reserve assets

 

--deposits not included in official reserve assets

 

--loans not included in official reserve assets

 

--financial derivatives not included in official reserve assets

 

--gold not included in official reserve assets

 

--other

 

 

 

 

II. Predetermined short-term net drains on foreign currency assets (nominal value)

 

 

 

 

 

 

 

 

 

Maturity breakdown (residual maturity)

 

Total

Up to 1 month

More than 1 and up to 3 months

More than 3 months and up to 1 year

1. Foreign currency loans, securities, and deposits

 

 

 

 

--outflows (-)

Principal

 

 

 

 

 

Interest

 

 

 

 

--inflows (+)

Principal

 

 

 

 

 

Interest

 

 

 

 

2. Aggregate short and long positions in forwards and futures in foreign currencies vis-à-vis the domestic currency (including the forward leg of currency swaps)

 

 

 

 

(a) Short positions ( - ) 4

 -60

 -60

 

 

(b) Long positions (+)

 

 

 

 

3. Other (specify)

 

 

 

 

--outflows related to repos (-)

 

 

 

 

--inflows related to reverse repos (+)

 

 

 

 

--trade credit (-)

 

 

 

 

--trade credit (+)

 

 

 

 

--other accounts payable (-)

 

 

 

 

--other accounts receivable (+)

 

 

 

 

 

 

 

 

 

 

 

III. Contingent short-term net drains on foreign currency assets (nominal value)

 

 

 

 

 

 

 

 

Maturity breakdown (residual maturity, where applicable)

 

Total

Up to 1 month

More than 1 and up to 3 months

More than 3 months and up to 1 year

1. Contingent liabilities in foreign currency

 

 

 

 

(a) Collateral guarantees on debt falling due within 1 year

 

 

 

 

(b) Other contingent liabilities

 

 

 

 

2. Foreign currency securities issued with embedded options (puttable bonds)

 

 

 

 

3. Undrawn, unconditional credit lines provided by:

 

 

 

 

(a) other national monetary authorities, BIS, IMF, and other international organizations

 

 

 

 

--other national monetary authorities (+)

 

 

 

 

--BIS (+)

 

 

 

 

--IMF (+)

 

 

 

 

(b) with banks and other financial institutions headquartered in the reporting country (+)

 

 

 

 

(c) with banks and other financial institutions headquartered outside the reporting country (+)

 

 

 

 

Undrawn, unconditional credit lines provided to:

 

 

 

 

(a) other national monetary authorities, BIS, IMF, and other international organizations

 

 

 

 

--other national monetary authorities (-)

 

 

 

 

--BIS (-)

 

 

 

 

--IMF (-)

 

 

 

 

(b) banks and other financial institutions headquartered in reporting country (- )

 

 

 

 

(c) banks and other financial institutions headquartered outside the reporting country ( - )

 

 

 

 

4. Aggregate short and long positions of options in foreign currencies vis-à-vis the domestic currency

 

 

 

 

(a) Short positions

 

 

 

 

(i) Bought puts

 

 

 

 

(ii) Written calls

 

 

 

 

(b) Long positions

 

 

 

 

(i) Bought calls

 

 

 

 

(ii) Written puts

 

 

 

 

PRO MEMORIA: In-the-money options 11

 

 

 

 

(1) At current exchange rate

 

 

 

 

(a) Short position

 

 

 

 

(b) Long position

 

 

 

 

(2) + 5 % (depreciation of 5%)

 

 

 

 

(a) Short position

 

 

 

 

(b) Long position

 

 

 

 

(3) - 5 % (appreciation of 5%)

 

 

 

 

(a) Short position

 

 

 

 

(b) Long position

 

 

 

 

(4) +10 % (depreciation of 10%)

 

 

 

 

(a) Short position

 

 

 

 

(b) Long position

 

 

 

 

(5) - 10 % (appreciation of 10%)

 

 

 

 

(a) Short position

 

 

 

 

(b) Long position

 

 

 

 

(6) Other (specify)

 

 

 

 

(a) Short position

 

 

 

 

(b) Long position

 

 

 

 

 

IV. Memo items

 

 

 

(1) To be reported with standard periodicity and timeliness:

 

(a) short-term domestic currency debt indexed to the exchange rate

 

(b) financial instruments denominated in foreign currency and settled by other means (e.g., in domestic currency) 

 

--nondeliverable forwards

 

   --short positions

 

   --long positions

 

--other instruments

 

(c) pledged assets

 

--included in reserve assets

 

--included in other foreign currency assets

 

(d) securities lent and on repo

5,270

--lent or repoed and included in Section I

 

--lent or repoed but not included in Section I

 

--borrowed or acquired and included in Section I

 

--borrowed or acquired but not included in Section I

5,270

(e) financial derivative assets (net, marked to market)

 

--forwards

 

--futures

 

--swaps

 

--options

 

--other

 

(f) derivatives (forward, futures, or options contracts) that have a residual maturity greater than one year, which are subject to margin calls.

 

--aggregate short and long positions in forwards and futures in foreign currencies vis-à-vis the domestic currency (including the forward leg of currency swaps)

 

(a) short positions ( – )

 

(b) long positions (+)

 

--aggregate short and long positions of options in foreign currencies vis-à-vis the domestic currency

 

(a) short positions

 

(i) bought puts

 

(ii) written calls

 

(b) long positions

 

(i) bought calls

 

(ii) written puts

 

(2) To be disclosed less frequently:

 

(a) currency composition of reserves (by groups of currencies)

53,680

--currencies in SDR basket

53,680

2--currencies not in SDR basket

 

--by individual currencies (optional)

 

 

 

Notes:

1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and deposits reflect carrying values. 

2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month end. 

3/  Gold stock is valued monthly at $42.2222 per fine troy ounce.

4/ The short positions reflect foreign exchange acquired under reciprocal currency arrangements with certain foreign central banks.  The foreign exchange acquired is not included in Section I, "official reserve assets and other foreign currency assets," of the template for reporting international reserves.  However, it is included in the broader balance of payments presentation as "U.S. Government assets, other than official reserve assets/U.S. foreign currency holdings and U.S. short-term assets."

November 18, 2010
tg-963

Obama Administration Releases November Housing Scorecard

WASHINGTON - The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury today released the November edition of the Obama Administration's Housing Scorecard (www.hud.gov/scorecard). The latest housing figures show continued signs of stabilization in house prices and high home affordability due in part to record low mortgage interest rates. The housing scorecard is a comprehensive report on the nation's housing market..

"The Obama Administration has made significant strides in promoting stability for the housing market and the nation's homeowners. Through a range of swift actions since we took office, we've seen millions more families able to stay in their homes and a steady rise in responsible borrowers refinancing their loans or becoming homeowners," said HUD Assistant Secretary Raphael Bostic. "But, while we cannot stop every foreclosure, we know that more has to be done to reach homeowners in distress and to help unemployed borrowers. That's why we're continuing to focus on successfully implementing the programs we've put in place – such as neighborhood stabilization funding, additional assistance on refinancing and emergency loans to help unemployed homeowners – and ensuring that help is available to homeowners as early as possible." 

"The recent reports of problems in the foreclosure process underscore the importance of helping responsible homeowners avoid the pain of foreclosure," said acting Assistant Secretary for Financial Stability Timothy Massad. "As we implement additional program enhancements to reach more homeowners, we continue to stress to mortgage servicers the importance of making every effort to enroll eligible homeowners in HAMP and provide meaningful alternatives to avoidable foreclosures."

The November Housing Scorecard features key data on the health of the housing market including:

•         An additional 1 million families refinanced their mortgages in the last quarter, taking advantage of the lowest rates in history on 30-year fixed mortgages. Since April 2009, record low interest rates have helped more than 8.3 million homeowners to refinance, resulting in more stable home prices and $15.2 billion in annual borrower savings.

•         As expected with the expiration of the Homebuyer Tax Credit, new and existing home sales have remained below levels seen in the first half of 2010. At the same time, home prices remained level in the past year after 33 straight months of decline and homeowners added $95 billion in home equity in the second quarter.

•         More than 3.73 million modification arrangements were started between April 2009 and the end of August 2010 --more than double the number of foreclosure completions during that time.  These modification arrangements included nearly 1.4 million trial Home Affordable Modification Program (HAMP) modification starts, more than 600,000 Federal Housing Administration (FHA) loss mitigation and early delinquency interventions, and nearly 1.8 million proprietary modifications under HOPE Now. While some homeowners may have received help from more than one program, the number of agreements offered were more than double the number of foreclosure completions for the same period (1.6 million).

Data in the scorecard also show that the recovery in the housing market continues to remain fragile. While the recovery will take place over time, the Administration remains committed to its efforts to prevent avoidable foreclosures and stabilize the housing market.

Each month, the Housing Scorecard incorporates key housing market indicators and highlights the impact of the Administration's unprecedented housing recovery efforts, including assistance to homeowners through the FHA and HAMP. The Obama Administration's complete Housing Scorecard is available at: www.hud.gov/scorecard.  

###

November 18, 2010
TG-960

Written Testimony of Chief of Homeownership Preservation Office Phyllis Caldwell Before the House Financial Services Subcommittee on Housing and Community Opportunity

 "Robo-Signing, Chain of Title, Loss Mitigation and Other Issues in Mortgage Servicing"

Chairwoman Waters, Ranking Member Capito, and Members of the Subcommittee, thank you for the opportunity to testify today regarding loss mitigation and issues surrounding mortgage servicing.  The testimony will cover  two key areas: first, the steps we are taking to ensure that servicers participating in the Making Home Affordable (MHA) program are adhering to program guidelines in light of the recent foreclosure issues, and second, the accomplishments of MHA to date and its impact on mortgage servicing.

The reports of "robo-signing", faulty documentation and other improper foreclosure practices by mortgage servicers are unacceptable.  If servicers have failed to comply with the law, they should be held accountable.  The Administration is leading a coordinated interagency effort to investigate misconduct, protect homeowners and mitigate any long-term effects on the housing market.  While Treasury does not have the authority to regulate the foreclosure practices of financial institutions, nor to ensure that those practices conform to the law, it is working closely with agencies that do have such authority.

The Financial Fraud Enforcement Task Force, a broad coalition of law enforcement, investigatory, and regulatory agencies that brings together more than 20 federal agencies, 94 U.S. Attorneys Offices, and dozens of state and local partners, is working to ensure that foreclosure practices are thoroughly investigated and any criminal behavior is prosecuted.  The Federal Housing Administration (FHA) has been reviewing servicers for compliance with loss mitigation requirements.  Additionally, the Office of the Comptroller of the Currency has directed all large national bank servicers to review their foreclosure management processes – including file reviews, affidavit processing, and signatures – to ensure that the processes are fully compliant with all applicable state laws.  The other independent banking regulatory agencies are doing similar reviews of institutions under their jurisdiction.  Attached to my testimony is a fact sheet providing more detail concerning the activities of the coordinated interagency effort.    

Because MHA and its first lien program, the Home Affordable Modification Program (HAMP), are pre-foreclosure programs, the recent reports of robo-signing of affidavits and improper foreclosure documentation do not directly affect the implementation of HAMP.  But these documentation failures reflect the fact that servicers did not have the proper resources in place, nor did they have procedures and controls in place to prevent this crisis.  As we have learned in implementing HAMP, servicers were historically structured and staffed to perform a limited role--primarily collecting payments.  They did not have the systems, staffing, operational capacity or incentives to engage with homeowners on a large scale and offer meaningful relief from unaffordable mortgages. 

The foreclosure problems underscore the continued critical importance of the Making Home Affordable Program launched by the Obama Administration.  Preventing avoidable foreclosures through modifications and other alternatives to foreclosure continues to be a critical national priority.  Foreclosure is painful for homeowners; it is also costly to servicers and investors.  Foreclosures dislocate families, disrupt the communities, and destabilize local housing markets. For this reason, the Obama Administration launched the Making Home Affordable program in the spring of 2009, of which HAMP is a key component.  HAMP is intended to prevent avoidable foreclosures by providing financial incentives to servicers, investors and borrowers to voluntarily undertake modifications of mortgages for responsible homeowners in a way that is affordable and sustainable over time.  In cases where a modification is not possible, the participating servicers must consider other alternatives to foreclosure. 

As a result, throughout the last 20 months, we have worked to develop systems and procedures to ensure that responsible homeowners are offered meaningful modifications and other foreclosure alternatives.  To remedy servicer shortcomings, we have urged servicers to rapidly increase staffing and improve customer service.  We have developed specific guidelines and certifications on how and when borrowers must be evaluated for HAMP and other loss mitigation options prior to foreclosure initiation.  We have also continued our compliance efforts to ensure borrowers are fairly evaluated and that servicer operations reflect Treasury guidance. MHA has strong compliance mechanisms in place to ensure that servicers follow our program's guidelines.  

HAMP Procedural Safeguards and Compliance Efforts

Treasury has built numerous procedural safeguards in HAMP to avoid foreclosure sales.  Specifically, program guidelines require participating mortgage servicers to:

• Evaluate homeowners for HAMP modifications before referring them for foreclosure. The focus here is on early intervention. Servicers must reach out to all potentially eligible borrowers when they are only two months delinquent and there is a still a viable opportunity to save the loan;
• Suspend any foreclosure proceedings against homeowners who have applied for HAMP modifications, while their applications are pending; 
• Evaluate whether homeowners who do not qualify for HAMP (or who have fallen out of HAMP) qualify for alternative loss mitigation programs or private modification programs; 
• Evaluate whether homeowners who cannot obtain alternative modifications may qualify for a short sale or deed-in-lieu of foreclosure; and
• Provide a written explanation to any borrower who is not eligible for modification and delay foreclosure for at least 30 days to give the homeowner time to appeal. 

Servicers may not proceed to foreclosure sale unless and until they have tried these alternatives.  They must also first issue a written certification to their foreclosure attorney or trustee stating that "all available loss mitigation alternatives have been exhausted and a non-foreclosure option could not be reached."  On October 6, Treasury clearly reminded servicers of this existing requirement that they are prohibited from conducting foreclosure sales until these pre-foreclosure certifications are executed. 

The MHA compliance program is designed to ensure that servicers are meeting their obligations under the MHA servicer contracts for loans where Fannie Mae or Freddie Mac is not the investor, and uses a variety of compliance activities to assess servicers from different perspectives.  Treasury has engaged a separate division of Freddie Mac, Making Home Affordable-Compliance (MHA-C), to perform these compliance activities.  Employing a risk-based approach, compliance activities are performed ranging generally monthly for servicers with the largest percentages of potentially eligible borrowers, to at least twice annually for the smaller-sized servicers. 

Our compliance activities focus on ensuring that homeowners are appropriately treated in accordance with MHA guidelines.  As the program has evolved, servicers have adapted their processes to incorporate MHA programs.  Treasury has implemented non-financial remedies that have shaped servicer behavior in order to address the most vital issue: the ultimate impact on the homeowner. 

As information regarding irregularities in servicer foreclosure practices arose, Treasury acted swiftly and instructed MHA-C to review the ten largest servicers' internal policies and procedures for completing these pre-foreclosure certifications before initiating the foreclosure proceedings, and to assess a limited sample of foreclosure sales that have occurred since the effective date of the guidance.  The results of the review are not yet available.  However, if MHA-C identifies any incidents of non-compliance with HAMP guidelines, Treasury will direct servicers to take appropriate corrective action, which may include suspending foreclosure proceedings and re-evaluating the affected homeowners for HAMP, as well as undertaking changes to servicing processes to help ensure that HAMP guidelines are followed prior to initiating the foreclosure process. 

HAMP's Accomplishments and Its Impact on the Mortgage Industry

To date, HAMP has achieved three critical goals: it has provided immediate relief to many struggling homeowners; it has used taxpayer resources efficiently; and it has helped transform the way the entire mortgage servicing industry operates. 

Twenty months into the program, close to 1.4 million homeowners have entered into HAMP trials and experienced temporary reductions in their mortgage payments.  Of these, almost 520,000 homeowners converted to permanent modifications.  These homeowners are experiencing a 36 percent median reduction in their mortgage payments--averaging more than $500 per month--amounting to a total, program-wide savings of nearly $3.7 billion annually for homeowners. 

Early indications suggest that the re-default rate for permanent HAMP modifications is significantly lower than for historical private-sector modifications--a result of the program's focus on properly aligning incentives and achieving greater affordability.  For HAMP modifications made in the fourth quarter of 2009, at six months, fewer than 10 percent of permanent modifications are 60+ days delinquent.  According to the OCC's Mortgage Metrics Report, the comparable delinquency rates for non-HAMP modifications made in the same quarter were 22.4 percent.  Regarding HAMP re-defaults, the OCC states, "These lower early post-modification delinquency rates may reflect HAMP's emphasis on the affordability of monthly payments and the requirements to verify income and complete a successful trial period."

Borrowers who do not ultimately qualify for HAMP modifications often receive alternative forms of assistance.  Based on survey data from the eight largest servicers, approximately one-half of homeowners who apply for HAMP modifications but do not qualify have received some form of private-sector modification.  Less than ten percent have lost their homes through foreclosure sales. 

HAMP uses taxpayer resources efficiently. HAMP's "pay-for-success" design utilizes a trial period to ensure that taxpayer-funded incentives are used only to support borrowers who are committed to staying in their homes and making monthly payments, and the investor retains the risk of the borrower re-defaulting into foreclosure.  No taxpayer funds are paid to a servicer or an investor until a borrower has made three modified mortgage payments on time and in full.  The majority of payments are made over a three to five-year period only if the borrower continues to fulfill this responsibility.  These safeguards ensure that spending is limited to high-quality modifications. 

MHA Has Been a Catalyst--Setting the Benchmark for Sustainable Modifications

MHA has transformed the way the mortgage servicing industry deals with alternatives to foreclosure.  Because of MHA, servicers have developed constructive private-sector options.  Where there was once no consensus plan among loan servicers about how to respond to borrowers in need of assistance, HAMP established a universal affordability standard:  a 31 percent debt-to-income ratio, which dramatically enhanced servicers' ability to reduce mortgage payments to sustainable levels while simultaneously providing the necessary justification to investors for the size and type of modification. 

In the year following initiation of HAMP, home retention strategies changed dramatically.  According to the OCC/ OTS Mortgage Metrics Report, in the first quarter of 2009, nearly half of mortgage modifications increased borrowers' monthly payments or left their payments unchanged.  By the second quarter of 2010, 90 percent of mortgage modifications lowered payments for the borrower.  This change means borrowers are receiving better solutions.  Modifications with payment reductions perform materially better than modifications that increase payments or leave them unchanged.

Moreover, even holding the percentage payment reduction constant, the quality of modifications made by servicers appears to have improved since 2008.  For modifications made in 2008, 15.8 percent of modifications that received a 20 percent payment reduction were 60 days or more delinquent three months into the modification.  For modifications made in 2010, that delinquency rate has fallen almost in half, to 8.2 percent.  The OCC's Mortgage Metrics Report from 2010:Q2 attributes the improvement in mortgage performance to "servicer emphasis on repayment sustainability and the borrower's ability to repay the debt."

Spurred by the catalyst of the HAMP program, the number of modification arrangements was nearly three times greater than the number of foreclosure completions between April 2009 and August 2010.  More than 3.7 million modification arrangements were started, including the close to 1.4 million trial HAMP modification starts, more than 568,000 FHA loss mitigation and early delinquency interventions, and more than 1.6 million proprietary modifications by servicing members of the HOPE NOW Alliance.

Further, it is important to keep in mind that MHA is only one of many Administration housing efforts targeting these challenges: the Administration has also provided substantial support for the housing markets through support for Fannie Mae and Freddie Mac to help keep mortgage rates affordable; purchase of agency mortgage-backed securities; and an initiative to provide support and financing to state and local Housing Finance Agencies (HFAs).  These HFAs provide, in turn, tens of thousands of affordable mortgages to first time homebuyers and help develop tens of thousands of affordable rental units for working families.

Responding to a Changing Housing Crisis

MHA was designed to be a versatile program.  MHA includes a second lien modification program, a foreclosure alternatives program that promotes short sales and deeds-in-lieu of foreclosures, and an unemployment forbearance program.  Treasury expanded HAMP to include FHA and Rural Development mortgage loans through the FHA-HAMP and RD-HAMP program, and also introduced a principal reduction option.  Finally, Treasury introduced a program to allow the hardest-hit states to tailor housing assistance to their areas, and worked with FHA to introduce an option for homeowners with high negative equity to refinance into a new FHA loan if their lender agrees to reduce principal on the original loan by at least ten percent.

Second Lien Modification Program

The Second Lien Modification Program (referred to as 2MP) requires that when a borrower's first lien is modified under HAMP and the servicer of the second lien is a 2MP participant, that servicer must offer to modify the borrower's second lien according to a defined protocol.  2MP provides for a lump sum payment from Treasury in exchange for full extinguishment of the second lien, or a reduced lump sum payment from Treasury in exchange for a partial extinguishment and modification of the borrower's remaining second lien.  Although 2MP was initially met with reluctance from servicers and investors who did not want to recognize losses on their second lien portfolios, as of October 3, 2010, Treasury has signed up seventeen 2MP servicers, which includes the four largest mortgage servicers, who in aggregate service approximately 60 percent of outstanding second liens.  The program uses a third-party database to match second lien loans with first lien loans permanently modified under HAMP.  Servicers are required to modify second lien loans within 120 days from the date the servicer receives the first lien and second lien matching information. The implementation of this database began over the summer.  Five 2MP Servicers have already begun matching modified first liens with their corresponding second liens, while the other twelve are in some phase of developing systems capacity to do so.  Information on the second lien program will be included in upcoming Monthly Servicer Performance Reports as data becomes available.

Home Affordable Foreclosure Alternatives Program

Any modification program seeking to avoid preventable foreclosures has limits, HAMP included. HAMP does not, nor was it ever intended to, address every delinquent loan.  Borrowers who do not qualify for HAMP may benefit from an alternative program that helps the borrower transition to more affordable housing and avoid the substantial costs of a foreclosure.  Under HAFA, Treasury provides incentives for short sales and deeds-in-lieu of foreclosure for circumstances in which borrowers are unable to complete the HAMP modification process or decline a HAMP modification.  Borrowers are eligible for a relocation assistance payment, and servicers receive an incentive for completing a short sale or deed-in-lieu of foreclosure.  In addition, investors are paid additional incentives for allowing some short sale proceeds to be distributed to subordinate lien holders.  The Home Affordable Foreclosure Alternatives (HAFA) Program became effective on April 5, 2010.

Unemployment Program

In March 2010, the Obama Administration announced enhancements to HAMP aimed at unemployment problems by requiring servicers to provide temporary mortgage assistance to many unemployed homeowners.  The Unemployment Program (UP) requires servicers to grant qualified unemployed borrowers a forbearance period during which their mortgage payments are temporarily reduced for a minimum of three months, and up to six months for some borrowers, while they look for a new job.  Servicers are prohibited from initiating a foreclosure action or conducting a foreclosure sale (a) while the borrower is being evaluated for UP, (b) after a foreclosure plan notice is mailed, (c) during the UP forbearance or extension, or (d) while the borrower is being evaluated for or participating in HAMP or HAFA following the UP forbearance period.  UP went in to effect August 1, 2010.  Because no incentives are paid under UP, data reports will be based on servicer surveys.

Principal Reduction Alternative

The Administration announced further enhancements to HAMP in March 2010 by encouraging servicers to write down mortgage debt as part of a HAMP modification (the Principal Reduction Alternative, or PRA).  Under PRA, servicers are required to evaluate the benefit of principal reduction and are encouraged to offer principal reduction whenever the net present value (NPV) result of a HAMP modification using PRA is greater than the NPV result without considering principal reduction.  The principal reduction and the incentives based on the dollar value of the principal reduced will be earned by the borrower and investor based on a pay-for-success structure.  Under the contract with each servicer, Treasury cannot compel a servicer to select PRA over the standard HAMP modification even if the NPV of PRA is greater than the NPV of regular HAMP.  However, Treasury has required servicers to have written policies for PRA to help ensure that similarly situated borrowers are treated consistently.  The program became operational October 1, 2010 and the four largest servicers have indicated an intention to offer PRA to homeowners.

FHA Refinance

Also in March 2010, the Administration announced adjustments to existing FHA refinance programs that permit lenders to provide additional refinancing options to homeowners who owe more than their homes are worth because of large declines in home prices in their local markets.  This program, known as the FHA Short Refinance option, will provide more opportunities for qualifying mortgage loans to be restructured and refinanced into FHA-insured loans. 

In order to qualify for this program, a homeowner must be current on their existing first lien mortgage; the homeowner must occupy the home as a primary residence and have a qualifying credit score; the mortgage owner must reduce the amount owed on the original loan by at least 10 percent; the new FHA loan must have a balance of no more than 97.75% of the current value of the home; and total mortgage debt for the borrower after the refinancing, including both the first lien mortgage and any other junior liens, cannot be greater than 115% of the current value of the home – giving homeowners a path to regain equity in their homes and affordable monthly payments.  Program guidance was issued to participating FHA servicers in September 2010.

HFA Hardest-Hit Fund

On February 19, 2010, the Administration announced the Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HFA Hardest-Hit Fund) for state HFAs in the nation's hardest-hit housing markets to design innovative, locally targeted foreclosure prevention programs.  In total, $7.6 billion has been allocated to 18 states (Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, and Tennessee) and the District of Columbia in four rounds of funding under the HFA Hardest-Hit Fund.  As of October 2010, three states were either accepting applications or providing assistance (Arizona, Michigan and Ohio).  By the end of 2010 another three states are expected to begin providing assistance.  The remaining states are expected to begin providing assistance in the first half of 2011. 

Allocations under the HFA Hardest-Hit Fund were made using several different metrics.  Some of the funds were allocated to states that have suffered average home price drops of more than 20 percent from their peak, while other funds were allocated to states with the highest concentration of their populations living in counties with unemployment rates greater than 12 percent or unemployment rates that were at or above the national average.  In addition, some funds were allocated to all the states and jurisdictions already participating in the HFA Hardest-Hit Fund to expand the reach of their programs to help more struggling homeowners.  The applicable HFAs designed the state programs themselves, tailoring the housing assistance to their local needs.  A minimum of $2 billion of the funding is required to be used by states for targeted unemployment or under-employment programs that provide temporary assistance to eligible homeowners to help them pay their mortgages while they seek re-employment or additional employment or undertake job training.  Treasury also required that all of the programs comply with the requirements of EESA, which include that they must be designed to prevent avoidable foreclosures.  All of the funded program designs are posted online at http://www.FinancialStability.gov/roadtostability/hardesthitfund.html.

Transparency, Accountability, and Compliance

I would like to provide you with further detail regarding the compliance efforts regarding HAMP.  To protect taxpayers and ensure that TARP dollars are directed toward promoting financial stability, Treasury established rigorous transparency and accountability measures for all of its programs, including all housing programs.  In addition, every borrower is entitled to a clear explanation if he or she is determined to be ineligible for a HAMP modification.  Treasury requires servicers to report the reason for modification denials in the HAMP system of record.  MHA-C's compliance activities, through Second Look loan file reviews and other on-site assessments, evaluate the appropriateness of the denials as well as the timeliness and accuracy of the denial notification to the affected borrowers.

In order to improve transparency of the HAMP NPV model, which is a key component of the eligibility test for HAMP, Treasury increased public access to the NPV white paper, which explains the methodology used in the NPV model.  To ensure accuracy and reliability, MHA-C conducts periodic audits of servicers' NPV practices.  MHA-C conducts two types of reviews related to NPV.  For those servicers that have re-coded the requirements of the NPV model in their processing systems, MHA-C conducts on-site and off-site reviews of model accuracy, model management, and data integrity and inputs.  For those servicers using the MHA Servicer Portal, MHA-C conducts reviews of data integrity and inputs.  Where non-compliance is found, Treasury requires servicers to take remedial actions, which can include re-evaluating borrowers with appropriate inputs, process changes, corrections to recoded NPV implementations, and, for servicers who have re-coded the NPV model, reverting back to the MHA Servicer Portal for loans with negative NPV results from the servicers' re-coded NPV model until necessary corrections have been re-evaluated by MHA-C.  In addition, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, Treasury is preparing to establish a web portal that borrowers can access to run a NPV analysis using input data regarding their own mortgages, and to provide to borrowers who are turned down for a HAMP modification the input data used in evaluating the application.

As stated above, servicers are subject to various other compliance activities, including periodic, on-site compliance reviews as well as on-site and off-site loan file reviews.  These various compliance activities performed by MHA-C assess servicers' compliance with HAMP requirements.  Treasury works closely with MHA-C to adapt and execute our risk based compliance activities quickly based on changes in the program as well as observed trends.  The current assessment of the top ten servicers' adherence to our pre-foreclosure certifications and requirements is one example of how we adapt our compliance activities.  MHA-C provides Treasury with the results from each of the various compliance activities conducted.  Treasury performs quality reviews of these activities and evaluates the nature and scope of any instances of non-compliance, and assesses appropriate responses, including remedies, in a consistent manner.  As stated earlier, during the beginning of the program, and as additional features (e.g., the Second Lien Program) are introduced, Treasury's compliance activities and associated remedies focus on shaping servicers' behavior and improving processes as servicers ramp up or modify their implementation of HAMP.  As the program and servicers' processes mature, financial remedies may become more appropriate and effective in reinforcing Treasury's compliance and performance expectations. 

Looking Ahead for Housing

Servicers need to increase efforts in helping borrowers avoid foreclosure through modification, as well as other alternatives to foreclosure, such as short sales.  Furthermore, as we have learned through HAMP, servicers must be held accountable for ensuring that their foreclosure processes have integrity and are used after all loss mitigation options have been exhausted.  Treasury's main priority is to ensure that first, participating servicers are doing everything that they can to reach, evaluate, and start borrowers into HAMP modifications, second, if a HAMP modification is not possible, every servicer is properly evaluating each homeowner for all other potential options to prevent a foreclosure, including HAFA or one of their own  modification programs, and third, servicers are utilizing programs such as UP or the HFA Hardest-Hit Fund to their fullest ability in order to prevent avoidable foreclosures. 

Over the past 20 months, we have been actively engaged with stakeholders from across the housing sector to find ways to increase the pace of new HAMP modifications, improve the characteristics of those modifications, and improve the borrower experience.  We sincerely appreciate the assistance that we have gotten from Members of Congress and the advocacy community in strengthening borrower protections, incentivizing principal reduction, and assisting the unemployed.  And most importantly, we value the efforts that Members of Congress, counselors and advocates have made in holding servicers accountable. 

Yet, as we deploy a comprehensive suite of loss mitigation options, we must remember, as the President noted, not every foreclosure can be prevented.  Any broad-based solution must aim at achieving both an efficient and equitable allocation of resources.  This means a balance must be struck between affording homeowners opportunities to avoid foreclosure while expeditiously easing the transition in those cases where homeownership is not an economically sustainable alternative.  This is especially important in order to lay the foundation for future appreciation which will provide a meaningful path to sustainable homeownership.   

In the coming months, we will begin to see the impacts of the newly launched MHA programs.  These programs will reach more distressed homeowners and provide additional stability to the housing market going forward.  In much the same way that HAMP's first lien modification program has provided a national blueprint for mortgage modifications, these new programs will continue to shape the mortgage servicing industry and act as a catalyst for industry standardization of short sale, refinance and principal reduction programs.  The interplay of all these programs will provide a much more flexible response to changes in the housing market over the next two years. 

November 17, 2010
TG-959

Treasury Announces Pricing of Public Offering of General Motors Common Stock

WASHINGTON – The U.S. Department of the Treasury announced today that it has agreed to sell 358,546,795 shares of its General Motors (GM) common stock at $33.00 per share, as part of GM's initial public offering.  The underwriters in the offering have a 30-day option to purchase up to 53,782,019 additional shares of common stock from Treasury on the same terms and conditions to cover over-allotments, if any.  If the underwriters' over-allotment option is exercised in full, the aggregate gross proceeds to Treasury from the offering are expected to be approximately $13.6 billion, before giving effect to any fees associated with the offering. 

After this offering, Treasury's ownership of GM's outstanding shares of common stock will decline by nearly half – from 60.8 percent to 36.9 percent (33.3 percent if the underwriters exercise their over-allotment option in full). 

"GM's initial public offering is an important step in the turnaround of the company and for our work to  recover taxpayer dollars and exit this investment as soon as practicable," said Treasury Secretary Tim Geithner.  "It is now widely recognized that the taxpayers' investment not only helped save jobs during the worst economic crisis in a generation but also gave the auto industry a solid foundation on which to build."

After this offering, Treasury's remaining investment in GM will consist of 553,847,273 shares of common stock (500,065,254 shares if the underwriters exercise their over-allotment option in full). 

A registration statement relating to these securities was declared effective by the Securities and Exchange Commission (SEC) on November 17, 2010.  Any offer or sale of these securities will be made only by means of a written prospectus forming the effective registration statement. Copies of the prospectus relating to the offering may be obtained for free, by visiting the SEC website at http://www.sec.gov or by contacting:

·         Morgan Stanley & Co. Incorporated, Attention: Prospectus Department, 180 Varick Street, 2nd Floor, New York, New York 10014, telephone 1-866-718-1649, or by sending an email to prospectus@morganstanley.com  

·         J.P. Morgan Securities LLC, Attention: Broadridge Financial Solutions, 1155 Long Island  Avenue, Edgewood, New York 11717, telephone 1-866-803-9204

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November 16, 2010
TG-955

Treasury Department Announces Key Leadership Hires for CFPB Implementation Team

WASHINGTON –The Treasury Department today announced the hiring of key leadership for the Consumer Financial Protection Bureau implementation team currently housed at Treasury.

Following on the commitment to create a level playing field among financial institutions of various sizes, Elizabeth Warren, Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau (CFPB), highlighted the selection of staff to lead the depository and non-depository institution teams.  Steve Antonakes will be the lead for depository supervision and Peggy Twohig will lead the non-depository supervision team.

"There are plenty of good lenders out there that want to build their businesses around providing good service to their customers, but the market doesn't work for them when some of their competitors aren't playing by the same rules," said Warren. "Peggy and Steve will play critical roles in building a CFPB that will level the playing field between bank and non-bank lenders. For the first time consumer credit is going to be regulated by product instead of by the kind of company selling it, and these two will be instrumental in developing this new approach."

The following individuals were announced today as joining the CFPB implementation team leadership:

Peggy Twohig

Peggy Twohig currently serves as Treasury's Director of the Office of Consumer Protection and Policy Lead for the CFPB implementation team.  Prior to joining Treasury, Twohig worked at the Federal Trade Commission on enforcement and policy issues related to consumer financial services, including directing the activities of the Division of Financial Practices.  Before her work at the FTC, Twohig practiced law with the firm of Arnold & Porter in Washington D.C., handling civil litigation matters.  In her new role, Twohig will spearhead efforts to conduct research and policy analysis around the creation of the first federal non-depository supervision program.  

Steve Antonakes

Steve Antonakes served as the Commissioner of Banks for the Commonwealth of Massachusetts for the past seven years and oversaw nearly 240 state-chartered banks and credit unions and more than 4,500 non-bank financial entities. Antonakes also served as a voting member of the Federal Financial Institutions Examination Council (FFIEC) and as the Vice Chairman of the Conference of State Bank Supervisors (CSBS). He began his career as an entry level Community Reinvestment Act Bank Examiner in June 1990 and worked his way through the management ranks to become the Commissioner of Banks – only the second career bank examiner to serve in that position.  In his new role, Antonakes will build the consumer supervision program for the nation's largest depository institutions.  

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November 16, 2010
TG-954

Under Secretary Lael Brainard Remarks to the Center for Strategic and International Studies

Co-hosted with the Korea Economic Institute and The Johns Hopkins' School for Advanced International Studies

As Prepared for Delivery

I'd like to thank CSIS, the Korea Economic Institute and SAIS for hosting today.  Your efforts to advance the public policy debate here in Washington and around the world are vital to furthering American policy innovation and leadership. 

Today, I'll discuss the outcomes and accomplishments of the past few weeks of international economic engagement, which included the President's trip to India, Indonesia, South Korea and Japan, the G-20's Seoul Summit, and the APEC Summit in Yokohama.

Let me start by recounting one of my own recent experiences. On a recent tour of a plant near Albany, a plant manager of more than 30 years described his company's efforts to look for new ways to make their processes and products better so they can gain share in the most highly competitive markets around the world.  Every day he and his team come in motivated to work hard, innovate, and be the toughest and best competitor around the world.  We want to be number one, he said, and we are constantly looking for new ideas that will help us stay there.

That captures in a nutshell why we are working so hard to put in place a policy framework that will move the U.S. economy from recovery to renewal, that will get Americans back to work and that will get businesses back to investing here at home.  As President Obama put it on his way back from Asia, "We should feel confident about our ability to compete.  But we need to step up our game."

Exports lie at the heart of this effort. The President's goal of doubling exports in five years gives us a clear prism to ensure that all of our policies remain relentlessly focused on expanding opportunities for American businesses and workers.

Our engagement in the G-20 and APEC and ASEAN, as well as bilaterally with countries such as Korea and China, are core components of our overall effort to revitalize America's innovative edge and renew the competiveness of our economy.  Let me touch on the three key elements of this effort, which were an integral part of our G-20 discussions and the President's trip to Asia.

Strengthening Growth and Rebalancing Demand

Before the crisis, our growth was unhealthy and unbalanced--fueled by cheap credit and fueling massive export surpluses abroad.  Looking forward, we have to find more sustainable sources of dynamism in our economy and around the world--sources of dynamism that will enable jobs to return, businesses to reinvest and America's competitiveness to be revitalized. 

Helping to put growth on a sounder footing was the core focus of our discussions at APEC and the G-20. As advanced economies like the United States continue repairing balance sheets, deleveraging, and putting public finances on a sound footing, we must work with the other major economies to support new engines of growth for the global economy.  Countries that previously relied on the U.S. consumer to fuel their economic expansion in the run up to the crisis will need to identify new sources of growth.  The emerging markets are vital to this effort, and the consumers and vast infrastructure needs in the rapidly growing economies in Asia, as well as Latin America and Africa, can be new engines of growth for the world economy. 

In Seoul, there was broad agreement among the G-20 that strengthening global growth is the primary goal, and there was broad recognition of the imperative to shift demand in order to lift overall growth.  Accordingly, the G-20 committed to a new framework to curb excessive imbalances, and noted that all economies – surplus no less than deficit – have a shared responsibility to support rebalancing.  The United States proposed this plan and it was widely supported by the G-20 leaders.

To take action, the G-20 will work in the coming months to develop a set of indicators that will serve as an early warning system to ensure preventive and corrective actions.  The United States will now work closely with our partners in the G-20 and the International Monetary Fund to create these indicators and to assess country policy trajectories against them.

Exchange rate policies will be a central focus of those discussions, and the G-20 recognized the important role of market-determined exchange rates in helping to facilitate this critical rebalancing.  We are working hard to ensure that China makes progress in allowing its exchange rate to appreciate in response to market forces--as Chinese officials have reaffirmed their commitment to do.  And we have noted the accelerated pace of appreciation in recent months.  If sustained, the pace of China's appreciation could make a material contribution to addressing the undervaluation of its currency.

Expanding Export Opportunities and Enforcing Trade Rules

As the President traveled through the fast-growing markets of Asia this past week, he emphasized the key role of opening new markets to support growth and jobs.

In 2009, exports made up 12 percent of U.S. GDP, which is the smallest percentage of the other leading economies.  If we want to create broad-based and sustainable growth that benefits American businesses, workers, farmers and manufacturers, we must expand export opportunities by strengthening trade rules in key markets, by enforcing the rules we have, and by supporting our exporters from the largest multinationals to the newest start ups.

As part of the National Export Initiative, the Administration is providing support for small- and medium-sized businesses, including improved access to credit through Ex-Im, and helping to find and remove obstacles to exporting.  I've heard from a number of small business exporters that these programs are among the most helpful and innovative they have encountered in recent years.

Commerce's advocacy on behalf of America's exporters is also yielding important gains.  As President Obama traveled through Asia last week, the Administration announced new trade transactions exceeding $14.9 billion in total value were finalized, with $9.5 billion in U.S. export content, and that will support 50,000 U.S. jobs. 

Trade agreements are likewise important.  On the bilateral side, President Obama noted during his trip that he is committed to completing negotiations with South Korea on the Free Trade Agreement as quickly as possible.  While progress has been made, USTR will keep working to improve the proposed FTA so it is beneficial to American industry and workers.  This agreement, if done right, could increase the annual export of American goods by some $10 billion, and billions more in services.  The President also reiterated his commitment to complete the pending agreements with Colombia and Panama. 

At the APEC Summit, the President discussed progress on the regional Trans-Pacific Partnership Agreement, which can serve as a platform for economic integration across the Asia-Pacific region and serve as a model for a world class, 21st century trade pact.  Multilaterally, USTR also continues to seek a successful conclusion to the Doha Round, particularly expanded market access in dynamic emerging economies.

But even as we move forward to create even stronger trade rules with key partners, we must enforce the rules we already have to ensure a level playing field for our companies and our workers. That is why the administration is vigorously defending our rights--from negotiation to filing cases in the WTO, where appropriate.  In fact, USTR has launched two WTO cases in recent months and is currently investigating a Section 301 petition.

Pursuing American Renewal 

But the most important foundation of our export-oriented renewal strategy is the President's commitment to strengthen the foundations of our economy so we can compete and win globally.

The President's Innovation Strategy is one of the key efforts by the Administration to harness the inherent ingenuity of American workers and industry to promote growth. This strategy focuses on investing in the building blocks of American innovation, such as R&D, education, infrastructure, and advanced communications technologies. 

As the President traveled in Asia, he observed that countries were investing in infrastructure while the United States is still living off our investments from decades ago.  Noting that it is time to upgrade our roads, railways and airports, the President recently announced a $50 billion infrastructure effort to bolster our competitiveness and create jobs.  We can and should learn from the efforts of other nations as we pursue infrastructure investments and strengthen the foundations of our competitiveness.

Tax initiatives are another area where we can provide incentives for businesses to invest today for the future.  The President recently proposed an expanded R&D tax credit and 100-percent expensing of capital investments, and the Administration is considering other measures to spur investment.

As we saw in the financial crisis, the stability of our financial system is a vital component of our future competitiveness and growth.  With the enactment of the historic Dodd-Frank law, the United States is now putting in place the most far-reaching reforms of our financial system since the Great Depression. 

At the G-20, leaders embraced the new bank capital and liquidity standards that are part of Basel III. They also agreed that no firm is too big to fail, that all countries need robust resolution regimes, and that the world needs to implement higher loss absorbency for the largest, most interconnected firms.  The G-20 also addressed derivatives, and noted that we need to move forward together to strengthen regulation of derivatives markets.  Together, these reforms will help prevent another financial crisis, create a level playing field, and foster a race to the top.

Let me conclude by noting that the G-20 Summit and the full scope of the President's trip to Asia showcased an America that is committed to working hard to remain innovative, competitive, and strong.  Through extensive engagements, we have forged common ground and agreement with our partners in the G-20 and other forums on the major challenges we face and the common solutions we must pursue.

The task before us now is to take the hard steps of action and implementation.  By joining in partnership we can leverage the best of America.  From training and educational institutions to business and labor, from state and local officials to federal policymakers, from small businesses and communities to international summits--we will create new engines of growth for American products and services and  renew the very foundations of our economic competitiveness. 

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November 4, 2010
TG-945

Global Agriculture and Food Security Program Partners Announce Second Round of Grants, Encourage Contributions from G-20 Counterparts

Three Countries to Receive $97 Million
to Help Small Farmers Increase Incomes and Improve Food Security  

WASHINGTON – Partners in the Global Agriculture and Food Security Program (GAFSP), a new fund to increase agriculture productivity and reduce poverty, announced this week that Ethiopia, Niger and Mongolia will receive the fund's second round of grants totaling $97 million. The grants will help each country increase food security, raise rural incomes and reduce poverty by enabling small holder farmers to grow more crops and earn more.

"Today's announcement demonstrates the promise of the Global Agriculture and Food Security Program," said Treasury Secretary Tim Geithner. "These investments will improve access to better seeds and soil, build rural infrastructure and connect farmers to markets. While three countries have been granted funding, many more compelling proposals were not financed due to lack of resources. In order to sustain this fund, we urge our G-20 colleagues to join us in this endeavor."

Twenty developing countries from regions including Africa, Asia, the Middle East and Latin America applied for the fund's second round of grants, with a total request of nearly $1 billion.  At the forthcoming G-20 Leaders Summit in Seoul, heads of state will discuss progress on global food security. 

Launched in April 2010, GAFSP is supported by the United States, Canada, South Korea, Spain, and The Bill & Melinda Gates Foundation.  Australia has recently joined the fund with a $50 million contribution. The fund represents a global effort to revive the agriculture sector in poor countries, and is a key element of the Obama Administration's initiative to enhance global food security. In the fund's first six months of existence, it has supported a total of eight countries and allocated $321 million.

"Last year, the G-20 pledged $22 billion to reverse decades of neglect of small farmers in the developing world," said Bill Gates, co-chair of the Bill & Melinda Gates Foundation. "It's time to follow through on those promises. The overwhelming demand for this fund proves it's a smart and effective way to support countries that are prioritizing agriculture. Helping family farmers be more productive and profitable will have a massive impact on hunger and poverty."

The winning countries were selected based on the recommendations of an independent review conducted by global agriculture experts.  In addition to having strong needs, the successful proposals demonstrated a comprehensive national agriculture strategy, technically sound interventions to increase agricultural productivity and a commitment to invest their own resources in the agriculture sector.

"Korea is committed to working with developing countries to strengthen their agriculture sectors. As G-20 countries gather in Seoul this week, these grants send a powerful message: we are fulfilling our promises to end chronic hunger," said Korean Finance Minister Yoon.  "The Global Agriculture and Food Security Program is a critical partner for developing countries. We urge new G-20 donors to contribute to this fund." 

The fund granted awards to:

·         Ethiopia ($51.5million): The fund will bolster agricultural production by increasing agricultural productivity and reducing soil degradation. GAFSP will also accelerate agricultural commercialization and agro-industrial development, improving nutrition and food security and protecting vulnerable households from natural disasters.

·         Niger ($33 million): The fund will finance the construction of new irrigation and water-harnessing infrastructure aimed at improving crop productivity.

·         Mongolia ($12.5 million): The fund will assist in linking farmers to markets, raising livestock productivity and quality, and providing technical assistance, allowing herders to more easily market their livestock.

It is estimated that the sudden increase in food prices in 2008 drove 100 million people into poverty.  Even before the food price spikes, 850 million people in poor countries were chronically malnourished.  With the outlook for future food prices still uncertain, GAFSP seeks to improve food security and reduce poverty by delivering rapid and predictable financing for the agriculture sector in low-income countries.

The fund was created in response to a call by G-20 Leaders in Pittsburgh last year for the World Bank Group to work with interested donors to set up a multi-donor trust fund to implement some of the $22 billion in pledges made by G-8 Leaders at their meeting in L'Aquila.

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November 4, 2010
TG-944

Treasury Targets Pakistan-Based Terrorist Organizations Lashkar-E Tayyiba and Jaish-E Mohammed

Treasury Action Includes Designation of Key Operational Commander in Mumbai Attacks

WASHINGTON – The U.S. Department of the Treasury today targeted the financial and support networks of Pakistan-based terrorist organizations Lashkar-e Tayyiba (LET) and Jaish-e Mohammed (JEM). Treasury took action against Azam Cheema, who helped train operatives for the November 2008 Mumbai attacks and was the "mastermind" behind the July 2006 Mumbai train bombings carried out by LET, for acting for or on behalf of LET. Treasury also acted against Hafiz Abdul Rahman Makki, head of LET's political affairs department, for acting for or on behalf of LET. Al Rehmat Trust, an operational front for JEM was designated for providing support to and for acting for or on behalf of JEM, and Mohammed Masood Azhar Alvi, JEM's founder and leader, was also designated today for acting for on behalf of JEM. Today's action, taken pursuant to Executive Order (E.O.) 13224, prohibits U.S. persons from engaging in any transactions with these individuals and entity and freezes any assets the designees have under U.S. jurisdiction.

"LET and JEM have proven both their willingness and ability to execute attacks against innocent civilians," said Stuart Levey, Under Secretary for Terrorism and Financial Intelligence. "Today's action – including the designation of Azam Cheema, one of LET's leading commanders who was involved in the 2008 and 2006 Mumbai attacks – is an important step in incapacitating the operational and financial networks of these deadly organizations.

Azam Cheema

Azam Cheema is a key commander in the operations of LET, a Pakistan-based terrorist group held responsible for the November 2008 terrorist attacks in Mumbai, India, and which has links to Usama bin Ladin and the al Qaida network. LET was designated by the United States pursuant to E.O. 13224 and as a Foreign Terrorist Organization in December 2001, and also designated by the UN 1267 Committee in May 2005.

Cheema has also been described as LET's surveillance or intelligence chief and has been involved in LET's training activities, specifically training LET members in bomb making and skills needed to infiltrate India. The cell that carried out the November 2008 terrorist attacks in Mumbai, India received some of their training from Cheema. He is also reported to have been involved in the July 2006 Mumbai train bombings perpetrated by LET.

In 2008, Cheema, the former LET commander for Bahawalpur, Punjab Province, Pakistan, was appointed to be an operations advisor to LET senior leader Zaki-Ur-Rehman Lakhvi, who was also previously designated by the UN 1267 Committee. As of 2004, Cheema was identified as being responsible for LET's external operational planning.

Hafiz Abdul Rahman Makki

As of late 2008, Hafiz Abdul Rahman Makki was reported to be head of LET's political affairs department and served as head of LET's foreign relations department. Makki has also played a role in raising funds for LET. In early 2007, he gave approximately $248,000 to an LET training camp and approximately $165,000 to an LET-affiliated madrassa.

Al Rehmat Trust

JEM is a Pakistan-based terrorist group designated in October 2001 by the United States pursuant to E.O. 13224 and by the UN 1267 Committee, and also designated as a Foreign Terrorist Organization (FTO) by the State Department in 2001. After it was banned in Pakistan in 2002, JEM began using al Rehmat Trust as a front for its operations. Al Rehmat Trust has provided support for militant activities in Afghanistan and Pakistan, including financial and logistical support to foreign fighters operating in both countries. In early 2009, several prominent members of al Rehmat Trust were recruiting students for terrorist activities in Afghanistan.

Al Rehmat Trust has also been involved in fundraising for JEM, including for militant training and indoctrination at its mosques and madrassas. As of early 2009, al Rehmat Trust had initiated a donation program in Pakistan to help support families of militants who had been arrested or killed. And in early 2007, al Rehmat Trust was raising funds on behalf of Khudam-ul Islam, an alias for JEM. Al Rehmat Trust has also provided financial support and other services to the Taliban, including financial support to wounded Taliban fighters from Afghanistan.

Mohammed Masood Azhar Alvi

Mohammed Masood Azhar Alvi (Azhar) founded JEM in 2000 and is the head of al Rehmat Trust. He is also a former leader of the terrorist group Harakat al Mujahadin, aka Harakat ul-Ansar; most of these groups' members subsequently joined JEM under Azhar's leadership. In 2008, JEM recruitment posters in Pakistan contained a call from Azhar for volunteers to join the fight in Afghanistan against Western forces.

Identifying Information:

Individual:                  AZAM CHEEMA
AKA:                         Azam Chima
AKA:                         Azim Chima
AKA:                         Asim Cheema
AKA:                         Azzam Cheema
AKA:                         Mohammed Azam Cheema
AKA:                         Chima Bhai
DOB:                         1953
POB:                          Faisalabad, Pakistan
Address:                     Islamabad, Pakistan
Alt Address #2:          Muzaffarabad, Pakistan
Alt Address #3:          Bahawalpur, Pakistan
Citizenship:                 Pakistani

Individual:                  HAFIZ ABDUL RAHMAN MAKKI
AKA:                          Hafiz Abdul Rehman Makki
AKA:                          Hafaz Abdul Rahman Maki
AKA:                          Abdulrahman Makki
DOB:                          1948
POB:                           Bahawalpur, Punjab province, Pakistan
Address:                      Muridke, Punjab province, Pakistan

Entity:                         AL REHMAT TRUST
AKA:                          al-Rahmat Trust
AKA:                          al-Rehman Trust
AKA:                          ur-Rahman Trust
AKA:                          ar-Rahman Trust
AKA:                          ur-Ramat Trust
Address:                      537/1-Z Defense Housing Area (DHA) Lahore, Pakistan
Address:                      Office 22, Third Floor, al Fatah Plaza, Commercial Market, Rawalpindi, Pakistan
Address:                      Room No. 22, 3rd Floor, al-Fateh Plaza, Commercial Market Road, Chandi Chowk, Rawalpindi, Pakistan
Address:                      Karachi, Pakistan
Address:                      Muzaffarabad, Nelam Road, Bandi Chehza, Pakistan
Address:                      Balakot, Besyan Chouk, Pakistan
Address:                      Haripur, Rajana Road Srah-Salah, Pakistan
Address:                      Rehana Road, Sirai Salih, Post Box #22, G.P.O. Haripur, Northwest Frontier Province, Pakistan

Individual:                  MOHAMMAD MASOOD AZHAR ALVI
AKA:                          Masud Azhar
AKA:                          Wali Adam Isah
AKA:                          Wali Adam Esah
Title:                            Maulana
DOB:                          July 10, 1968
Alt. DOB:                   June 10, 1968
POB:                           Bahawalpur, Punjab Province, Pakistan
Address:                      1260/108, Block No.6-B, Kausar Colony, Model Town-B, Bahawalpur, Punjab Province, Pakistan
Alt. Address:              Lahore City, Lahore District, Punjab Province, Pakistan
Citizenship:                 Pakistani

###

December 2, 2010
TG-991

*Corrected quote.
Correction: Treasury Designates Three Pakistani Terrorists

WASHINGTON – The U.S. Department of the Treasury today designated two of Pakistan's most wanted terrorists: Lashkar-e Jhangvi (LJ) senior leader Amanullah Afridi for acting for or on behalf of LJ and LJ chief operational commander Mati ur-Rehman for acting for or on behalf of LJ and al-Qa'ida. Treasury today also designated a third individual, Abdul Rauf Azhar, a senior leader of Jaish-e Mohammed (JEM), for acting for or on behalf of JEM. 

LJ and JEM are both Pakistan-based terrorist organizations.  LJ has conducted numerous attacks in Pakistan and is the group responsible for the January 2002 kidnapping and killing of U.S. journalist Daniel Pearl.  LJ was designated by the United States pursuant to Executive Order (E.O.) 13224 in January 2003, by the UN 1267 Committee in February 2003 and was also designated as a Foreign Terrorist Organization (FTO) by the State Department in 2003.  JEM, which has conducted attacks in India and Afghanistan, was designated in October 2001 by the United States pursuant to E.O. 13224, by the UN 1267 Committee and by the State Department as an FTO in 2001. Today's designations were taken pursuant to E.O. 13224, which prohibits U.S. persons from engaging in any transactions with these individuals and freezes any assets the designees have under U.S. jurisdiction.
 
"Today's actions strike at the heart of two terrorist organizations responsible for deadly attacks against innocent civilians in Pakistan, Afghanistan and India," said Under Secretary for Terrorism and Financial Intelligence Stuart Levey. "All three of today's targets are actively involved in leading or planning operations on behalf of these dangerous terrorist organizations."

Amanullah Afridi
The chief of LJ and one of Pakistan's most wanted terrorists, Amanullah Afridi has been a key figure in directing terrorist-related activities of LJ for several years.  As of November 2009, Afridi was the leader of a Karachi-based LJ group and, as of June 2009, the chief of LJ. Afridi is involved in numerous terrorist activities in Pakistan. He has prepared and provided suicide jackets for al-Qa'ida operations, trained suicide bombers and trained the assassin of Pakistani cleric Allama Hassan Turabi.

Mati ur-Rehman
One of Pakistan's most wanted terrorists, Mati ur-Rehman is the chief operational commander of LJ and has also worked on behalf of al-Qa'ida. In September 2009 he was identified as a planning director for al-Qa'ida and was linked to the August 2006 plot to destroy U.S.-bound British aircraft. As a leader of LJ, Rehman has been involved in multiple terrorist activities. He has led militants seeking to carry out attacks in Pakistan and was involved with a militant training camp in Pakistan. Rehman has also been implicated in plots or attacks against a former Pakistani president, a former Pakistani prime minister, and the U.S. consulate in Karachi.

Abdul Rauf Azhar
Abdul Rauf Azhar is a senior leader of JEM.  As a senior leader of this terrorist organization, Azhar has urged Pakistanis to engage in militant activities. He has served as JEM's acting leader in 2007, as one of JEM's most senior commanders in India, and as JEM's intelligence coordinator.  In 2008 Azhar was assigned to organize suicide attacks in India. He was also involved with JEM's political wing and has served as a JEM official involved with training camps.

Identifying Information:

Individual:     
AMANULLAH AFRIDI
AKA:                    
Mufti Ilyas
AKA:              
Aman Ullah
AKA:              
Amanullah Urs
AKA:                   
 Muhammad Aman Gul
DOB:          
1968 – 1975
Address:         
Frontier Region Kohat, Pakistan

Individual:           
MATI UR-REHMAN
AKA:                    
Mati-ur Rehman
AKA:                   
Mati ur Rehman
AKA:                    
Matiur Rahman
AKA:                    
Matiur Rehman
AKA:                    
Matti al-Rehman
AKA:              
Abdul Samad
AKA:              
Samad Sial
AKA:              
Abdul Samad Sial
DOB:           
1977
Nationality:     
Pakistan

Individual:           
ABDUL RAUF AZHAR
AKA:              
Abdul Rauf Alvi
AKA:              
Abdur Rauf Azhar
DOB:          
1974
POB:               
Bwawal Pur (likelyBahawalpur), Pakistan

###

November 3, 2010
TG-943

Secretaries Geithner, Sebelius, NIH Director Collins
Announces Recipients of
Affordable Care Act Grants to Support
Groundbreaking Biomedical Research

Under the Affordable Care Act, Therapeutic Discovery
Credit Will Support Research
with Significant Potential to Produce New Therapies,
Create High-Quality Jobs 

WASHINGTON – Secretary of the Treasury Tim Geithner and Secretary of Health and Human Services Kathleen Sebelius joined with NIH Director Dr. Francis Collins today to announce the recipients of the $1 billion in new therapeutic discovery project credits and grants created by the Affordable Care Act.  This program will help nearly 3,000 small biotechnology companies in nearly every state in the country produce new and cost-saving therapies, support good jobs and increase U.S. competitiveness. 

"The United States has the most innovative companies, the most ambitious entrepreneurs and the most productive workers in the world," said Secretary Geithner.  "These grants will help make sure our companies, entrepreneurs and workers can continue to invest and innovate, which will strengthen our economy now and far into the future."

"The Therapeutic Discovery Project Program is the latest step in our efforts to improve the nation's health care.  The grants and tax credits we're announcing today will support small biotech firms with big potential across the country," said Secretary Sebelius.  "With this funding, they'll be able to hire more staff, improve facilities and move forward with research projects that might otherwise have been put on hold. We can't afford to see promising discoveries discarded or innovative businesses move overseas.  Thanks to the funding provided today, firms can avoid these roadblocks and continue to do business right here in the US."

"These grants made possible by the Affordable Care Act will not only help to create jobs and bolster the economy but also bring us closer to the next generation of life-saving cures," said NIH Director Dr. Collins.  "The projects funded show significant potential to create new therapies that will address unmet medical needs and bolster the medical countermeasure supply we use to respond to health emergencies."

A total of 2,923 companies specializing in biotechnology and medical research in 47 states and the District of Columbia received awards under the therapeutic discovery project program created by the Affordable Care Act.  In all, 4,606 applications from these nearly 3,000 companies were awarded funding.

The therapeutic discovery project program is targeted to projects that show significant potential to produce new therapies, address unmet medical needs, reduce the long-term growth of health care costs, or advance the goal of curing cancer within the next 30 years.  The allocation of the credit also reflects which projects show the greatest potential to create and sustain high-quality, high-paying jobs in the United States and to advance our competitiveness in the fields of life, biological, and medical sciences.  Today, the biotechnology industry employs 1.3 million workers, and the industry continues to be a key growth engine for our economy.

The credit covers up to 50 percent of the cost of qualifying biomedical research and is only available to firms with fewer than 250 employees.  To provide an immediate boost to U.S. biomedical research and the small businesses that conduct it, the credit is effective for investments made in 2009 and 2010.  Firms could opt to receive a grant instead of a tax credit, so start-ups that are not yet profitable can benefit as well.

To view the full list of recipients, click here. 

 

###

 

November 3, 2010
TG-940

Treasury Assistant Secretary for Financial Markets Mary Miller
November 2010 Quarterly Refunding Statement

WASHINGTON – The U.S. Department of the Treasury is offering $72 billion of Treasury securities to refund approximately $13.8 billion of privately held securities maturing on November 15, 2010.  This will raise approximately $58.2 billion.  The securities are:

 

-        A 3-year note in the amount of $32 billion, maturing November 15, 2013;

-        A 10-year note in the amount of $24 billion, maturing November 15, 2020; and

-        A 30-year bond in the amount of $16 billion, maturing November 15, 2040.

 

The 3-year note will be auctioned on a yield basis at 1:00 p.m. EST on Monday, November 8, 2010. The 10-year note will be auctioned on a yield basis at 1:00 p.m. EST on Tuesday, November 9, 2010, and the 30-year bond will be auctioned on a yield basis at 1:00 p.m. EST on Wednesday, November 10, 2010.  All of these auctions will settle on Monday, November 15, 2010. 

 

The balance of Treasury financing requirements will be met with the regular weekly bill auctions, the regular monthly nominal coupon security auctions, the November 10-year TIPS reopening auction and the January 10-year TIPS auction.

 

Treasury may also issue cash management bills during the quarter.

 

Projected Financing Needs

 

In recent months Treasury has reduced coupon offering sizes in the front-to-intermediate sectors of the nominal coupon curve.  In total, these cuts have reduced Treasury's annualized borrowing capacity by $328 billion.  Based on current fiscal forecasts, coupon auction sizes are likely to remain steady over the coming quarter.  Treasury will continue to monitor projected financing needs and make appropriate adjustments, as necessary.

 

Treasury Inflation-Indexed Securities (TIPS)

 

Over the past year Treasury has made changes to TIPS issuance to improve liquidity in the TIPS market.  These changes have included increasing overall TIPS issuance, increasing the frequency of 10-year TIPS auctions, and replacing 20-year TIPS with 30-year TIPS. 

 

After extensive consultation with market participants, Treasury is adding a second reopening to each of its 5-year and 30-year TIPS offerings.  Beginning in CY2011, the original-issue 5-year TIPS will be auctioned in April and reopening auctions will take place in August and December.  Similarly, the original-issue 30-year TIPS will be auctioned in February with subsequent reopening auctions in June and October.  As a result of these changes, Treasury will hold a TIPS auction in every month of the year.  

 

Beginning in January 2011, Treasury will regularly hold all TIPS auctions on the Thursday immediately preceding the end-of-month coupon auctions.  This will help spread out auctions, provide a longer "when-issued" trading period and give TIPS their own auction week each month. As a result, 10-year TIPS auctions will settle on the last business day of the month, rather than the current practice of mid-month settlement, and settlement dates will be uniform for all TIPS auctions. 

 

Data Releases

 

As part of its transition to a new IT system, the Office of Debt Management undertook a reevaluation of the type, frequency and form of data released to the Treasury website as part of the Quarterly Refunding process. After consulting with market participants, Treasury began releasing data to the Treasury website at http://www.treas.gov/offices/domestic-finance/debt-management/Quarterly%20data%20release.xlsx in mid-October. 

 

Going forward, the Office of Debt Management will release this data on a regular quarterly basis at the same time that it releases the Primary Dealer Meeting Agenda. 

 

The Office of Debt Management is continuing to review the data it provides to the public. We welcome comments regarding the content, form and usefulness of the data.

 

Please send comments and suggestions on these subjects or others related to debt management to debt.management@do.treas.gov. 

 

The next quarterly refunding announcement will take place on Wednesday, February 2, 2011. 

 

###

 

 

 

November 3, 2010
TG-942

Minutes of the Meeting of the Treasury Borrowing Advisory Committee Of the Securities Industry and Financial Markets Association

November 2, 2010

 

The Committee convened in closed session at the Hay Adams Hotel at 9:03 a.m. All Committee members were present.  Assistant Secretary for Financial Markets Mary Miller, Deputy Assistant Secretary (DAS) for Federal Finance Matthew Rutherford and Director of the Office of Debt Management Colin Kim welcomed the Committee.  Other members of Treasury staff included Fred Pietrangeli, Moji Jian, Jennifer Imler and Alfred Johnson.  Federal Reserve Bank of New York members Mark Cabana and Dina Marchioni were also present. 

 

DAS Rutherford opened the discussion with a presentation to the Committee.  He noted that the budget deficit for FY10 printed at $1.294 trillion.  This was an improvement from the Administration's previous estimate of approximately $1.45 trillion. Rutherford noted that the recent improvement in the fiscal situation was led by improvements in tax receipts, led by a 43 percent year-over-year increase in corporate taxes.  Personal income tax receipts also continue to rise, although at a more gradual pace as the economy continues to experience below potential growth.  Ongoing TARP repayments have been another source of income that has reduced Treasury's borrowing needs.

           

Looking ahead to FY11, DAS Rutherford noted that total receipts are projected to increase to 15.8 percent of GDP.  Over the coming years, receipts as a percentage of GDP are expected to gradually increase back towards the historical average of 18 percent.  This improvement is built into many forecasters' estimate of the deficit.  A survey of the primary dealers found that the average deficit forecast for FY11 is $1.214 trillion, over $200 billion below OMB's forecast.

 

Rutherford noted that the forecast involves some level of uncertainty.  The potential for individual tax rate changes in the coming months could have a significant impact on receipts.  OMB forecasts assume that individuals earning over $250,000 will have their tax rates rise, while other earners will continue to pay at the current rates.  Uncertainty surrounding the passage of the annual AMT extension could also impact the forecast for receipts.

 

The outcome of tax policy, coupled with uncertainty about the economic growth outlook, will impact Treasury's ability to continue to cut auction sizes in the coming months.  Rutherford suggested that Treasury will likely maintain auction sizes at the current levels over the coming quarter to assess the fiscal outlook.  However, it was noted that further reductions in offering amounts could take place in 2011. 

 

Rutherford then discussed recent trends in auction participation.  Over the past quarter, bid-to-cover ratios have remained extremely high for bill, note, bond, and Treasury Inflation Protected Securities (TIPS) auctions.  A comparison to other sovereign issuers underscored that Treasury auctions remain well subscribed.  He highlighted that domestic funds continue to be active participants in the auction process, and that foreign demand remains robust. 

 

He noted that Treasury has been very pleased with the recent performance of TIPS auctions.  Despite this year's 48 percent increase in gross issuance, demand for TIPS has been robust.  Bid-to-cover ratios have been rising and concentration in TIPS secondary market trading has fallen.  The performance of the asset class has given Treasury confidence to continue to expand the program going forward.  Rutherford noted that this could be accomplished through an additional five and 30-year TIPS reopening.

 

Director Kim then turned to the current state of the Treasury portfolio.  Overall, bills as a share of the total outstanding portfolio continued to fall since the last time the committee met.  He noted that bills (including SFP) currently make up approximately 21 percent of the portfolio, compared to the pre-crisis average of approximately 24 percent.  He indicated that Treasury is watching the bill market for signs of strain, but to date the market continues to function relatively well. 

 

Kim noted that the decline in bill issuance mirrors the increase in coupons as a percentage of the portfolio.  Nominal coupons currently make up 72 percent, which is above the long-term average of 69 percent.  He noted that TIPS currently comprise 7 percent of the portfolio and issuance in this program will continue to steadily increase over the next year.  For calendar year 2011, Treasury expects to issue over $100 billion in TIPS.  It was highlighted that this would likely stabilize TIPS as a percentage of the overall portfolio.

 

Director Kim noted that Treasury continues to reduce some of the rollover risk embedded in the portfolio.  The average maturity of the debt currently stands at 59 months, which is in line with the average observed over the last 30 years. Going forward, Kim indicated that this measure will continue to gradually extend further.  He also noted that the percentage of debt maturing in one, two and three years are at historic lows.

 

Rutherford then briefly concluded with a discussion on the long-term fiscal challenges facing debt managers.  Aside from a review of the OMB mid-session review forecasts, he indicated that the bipartisan fiscal commission is expected to present their findings in December. 

 

The Committee then turned to the first question in the charge.  Four general questions were posed by a member of the Committee to frame the discussion.  First, what should Treasury do with nominal auction sizes over the coming quarter?  Second, what should be the average maturity of the Treasury debt portfolio?  Third, how should the Treasury think about bills in the portfolio?  Fourth, what changes should Treasury make to the TIPS calendar?

 

Members noted that there was significant uncertainty surrounding the future of the Bush tax cuts and the economic growth outlook.  Some suggested it might be prudent for Treasury to stabilize nominal coupon issuance for the next several months until clarity regarding the fiscal situation emerges.   

 

With regard to the average length, several members of the Committee noted that if Treasury continued with its current issuance pattern, the average length would gradually increase from current levels.  One member suggested that Treasury should issue significantly more 30-year bonds, despite some metrics that suggest that long-term issuance is expensive (i.e. the spread between 10- and 30-year yields).  This member underscored that 30-year rates were near historic lows.  Overall, the committee was comfortable with continuing to extend the average maturity of the debt.

 

The discussion about lengthening the average maturity of the debt led to a discussion about the size of the Treasury bill market.  One member noted that bills were near historically low levels as a percent of the portfolio and that further shrinkage would be problematic for the bill market.  Another member stated that negative bill rates ultimately benefit Treasury, because reduced bill issuance would most likely result in making longer-dated coupons and bank deposits more attractive to investors.  Members agreed that Treasury should monitor the bill market going forward.

 

At this point, a member asked about the impact of the Fed's potential quantitative easing (QE2), expected to be announced at the November 2010 FOMC meeting.  The question arose regarding whether the Fed and the Treasury were working at cross purposes, given that Treasury is extending the average maturity of the portfolio while the Fed is expected to purchase longer-dated securities.  The member noted that from an economic perspective, the Fed's purchase of longer-dated coupons via increasing reserves was economically equivalent to Treasury reducing longer-dated coupons and issuing more bills.

 

It was pointed out by members of the Committee that the Fed and the Treasury are independent institutions, with two different mandates that might sometimes appear to be in conflict.  Members agreed that Treasury should adhere to its mandate of assuring the lowest cost of borrowing over time, regardless of the Fed's monetary policy.  A couple members noted that the Fed was essentially a "large investor" in Treasuries and that the Fed's behavior was probably transitory. As a result, Treasury should not modify its regular and predictable issuance paradigm to accommodate a single large investor.   

 

The discussion then turned to TIPS.  A member outlined a plan to expand the TIPS program to monthly issuance by adding second reopenings of 5-year TIPS and 30-year TIPS.  It was noted that Treasury has been gradually increasing the program and that market participants expected further increases in the program in Calendar Year 2011.  Since Treasury auctions of TIPS tend to be "liquidity events", the idea of second reopenings and having TIPS auctions every month would improve liquidity. 

 

Several members raised the issue of the cost of the TIPS program, suggesting that the cost of the program has remained high relative to nominal issuance.  Some suggested that Treasury undertake another cost study in the future.  It was, however, recommended that Treasury increase the size of the program and add the additional reopenings. 

 

The Committee next turned to the second question in the charge concerning the outlook for non-bank financial institutions in the aftermath of the 2008 financial crisis and the more diminished role played by these entities in the allocation of credit.

 

The presenting member began with a theoretical discussion of similarities and differences between non-bank and traditional bank financial institutions, noting that both institutions engage in maturity transformation, liquidity transformation, and credit quality transformation.  However, it was noted that traditional banks engaging in these activities are subject to regulatory oversight, have deposit insurance, and have access to a lender of last resort. This is not the case for the non-bank financial institutions. 

 

The presenter then discussed the primary changes in "shadow-bank" liabilities versus traditional bank liabilities.  The main changes in shadow bank liabilities include a large decline in commercial paper, asset-backed securitizations, and repurchase transactions (repos).   On the traditional banking side, the presenter noted that bank liabilities are continuing to grow, particularly small time deposits. The presenter highlighted that, although shadow banking liabilities have declined, they still exceed traditional bank liabilities.

 

The presenting member highlighted the sharp post-Lehman decline in money fund balances as one reason for the contraction of shadow bank credit. The member noted that prime money market funds' assets under management (AUM) fell from their August 2008 peak of $1.3 trillion to about $800 billion in Q4 2008. However, as of September 2010, total prime fund assets were only down by $252 billion from the peak. The presenter also noted the enormous shrinkage of security lenders as a large source of credit creation. The assets under management of securities lenders fell from over $3 trillion in Q4 2007 to just over $1.5 trillion in Q2 2010.

 

The member then went on to cite the large declines in issuance by sophisticated ABCP issuers such as SIVs and securities arbitrage vehicles and repo utilization.  The member underscored that ABCP securitization grew steadily until 2007 before reversing course in 2008.

 

Supply and demand dynamics were discussed next.  It was noted that while supply of money market instruments (excluding U.S Treasury securities of less than 1 year) has declined considerably since September 2008, demand has grown. The member noted, however, that a large portion of the decline in supply appears to have stabilized.  On the demand side, the member noted that the popularity of structured products and floating rate securities has diminished since the crisis.

 

The member concluded by discussing the overall implication of the diminished role of the shadow bank credit allocation on the US Treasury market. The member forecast higher Treasury security holdings as the likely outcome of these changes. This is due to a combination of factors that include high investor demand for cash-like investments, lower supply of alternative products, and regulatory changes like 2a-7 liquidity requirements and the Basel 3 liquidity coverage ratio.

 

The Committee next turned to the question in the charge regarding the impact of the Basel 3 on financial markets and the Treasury debt market.  The presenting member began by noting that Basel 3 is going to impose stricter capital, liquidity, and leverage requirements on regulated financial institutions over the next decade.  The benefits of doing so will be a significant reduction in systemic risk to the global banking system.   

 

The presenter stated that Basel 3 is still a work in progress and many details have yet to be decided.  That said, Basel 3 is significantly broader in scope and a more complex regulatory undertaking relative to prior Basel accords.  It is also being implemented at a faster pace than previous Basel accords and these changes are occurring at a time when global economic activity is slow.   Isolating the potential macro-economic and financial market impacts of Basel 3 is made more difficult by the fact that there are a number of other regulatory reforms being considered around the globe.

 

The presenter then began discussing the changes in the Basel capital requirements.  Capital requirements for banks are expected to rise due to the proposed increases in risk weights for certain asset classes and an overall increase in capital ratios.  By some estimates, risk weighted assets are expected to increase by 60 percent.  Calibration of the capital requirements going forward is critical to maintaining support for certain credit activities such as securitization and hedging.  The presenter suggested that without proper capital calibration, borrowing rates will likely increase under Basel 3, and the inability for banks to hedge credit risk will ultimately reduce the bank's ability to extend credit.  Capital calibration may impact such performance metrics like return on equity and the cost of equity for large banks, which in turn, may impact the supply of lendable funds and potentially move some lending activity outside of the regulated banking system into the non-bank financial system.

 

The presenter next focused the discussion on the Basel 3 liquidity ratios.  Liquidity ratios are intended to guard against runs on banks' wholesale liabilities. This requirement is expected to be implemented by December 31, 2011.  The liquidity coverage ratio is defined as the "stock of high quality assets divided by the projected net cash outflows over a 30 day horizon." High quality assets are defined as cash, sovereign, investment grade corporate and public sector debt, while cash outflows include retail deposits, unsecured wholesale funding, secured funding, conduits and contingent liabilities. As proposed in Basel 3, the liquidity requirement may prove to be problematic, particularly with regard to the treatment of deposits and unfunded liabilities.  Banks would be required to carry a higher percentage of liquid assets, which would reduce lending capacity and banks' return on assets.

 

Overall, it was noted that these proposed changes in liquidity requirements could result in higher lending costs, reduced interbank liquidity, diminished ability of banks to hedge credit risk and a reduced ability to provide back-stop facilities for commercial paper.  It could also lead to an expansion of the non-bank financial system.

 

The presenter then discussed the proposed leverage ratios contained in Basel 3.  As currently proposed, Basel 3 creates a more conservative leverage standard than currently exists for most US banks, due to a stricter definition of Tier 1 capital in combination with a broader definition of total assets (including off balance sheet derivatives and contingent liabilities).  The leverage ratios are expected to be implemented by 2015 and imply further deleveraging by US banks in order to comply with the proposed rule.  This requirement would also impact the ability of banks to provide credit lines. 

 

The presenter also noted that Basel 3 will have an impact on Treasury markets by its impact on economic growth and rules governing the ownership of securities and loans. There have been a number of studies on the potential macroeconomic impacts of Basel 3.  These estimates indicated that Basel 3 will result in an increase in lending rates of between 20 to 100 basis points in the US, and real GDP growth impacts of      -0.1 percent per year to -0.9 percent per year.  In terms of Treasury securities, Basel 3 will probably result in banks holding more Treasury and agency securities in their portfolios and fewer loans.  There are a range of estimates but one private forecast predicted that Basel 3 liquidity requirements would result in $400 billion of new Treasury security purchases by U.S. commercial banks by 2015. 

 

The Committee finally addressed the fourth question in the charge regarding the implications of a second round of quantitative easing.  The member provided a presentation that considered market expectations of QE2 and its impact over the medium- and long-term horizons.

 

The presenting member stated that the market expects the Federal Reserve to purchase $100 billion per month, as well as $30 billion per month in MBS reinvestments.  This will total $1,560 billion in Treasury purchases over the next year.  The member stated, however, that market participants believe the Fed will leave the status of QE2 open ended, with purchases ultimately dependent on economic conditions.  The presenter also noted that the program should last six months to two years. 

 

The presenting member thought that over the medium term (one to two years), QE2 would force Treasury yields lower and would likely lead the curve to flatten in the five- to ten-year sector.  Meanwhile, the risk premium in 30-year bonds would likely increase given concerns about inflation and the value of the U.S. dollar. 

 

The presenter stated that financial markets generally believe that QE2 will push swap spreads wider as the float of U.S. Treasury supply declines.  It was also noted that there could be some tightness in the repo market.  Credit spreads are also expected to tighten alongside other risk premiums. While mortgages will initially trade wider versus Treasuries, the presenter expected that mortgage spreads should narrow relative to both the Treasury and swap curves.  The presenter further noted that rate volatility will decline as market rates approach zero, with realized volatility in the long-end remaining higher as uncertainty and re-inflation fears increase.

 

According to the presenting member, liquidity issues could arise as the projected scope of QE2, along with MBS reinvestments, may exceed the entire combined expected net issuance of Treasuries, Agencies, Agency MBS, and Investment Grade Corporates.  The member noted that potential illiquidity in the intermediate sector of the Treasury curve could push some investors into bills, 30-year Treasuries, and/or riskier assets. 

 

The member noted that the U.S. Treasury and Federal Reserve are two independent, separate institutions with different mandates.  As a result, it was noted that Treasury should not alter its issuance strategy.  However, the presenting member suggested that Treasury could address potential illiquidity issues through additional issuance in sectors impacted by QE. 

 

 

The presenting member then discussed the potential impact on financial markets of the Federal Reserve's exit strategy from QE2.  The member noted that there was the potential for an extreme market reaction associated with the Fed's exit from potential purchases.  This risk, however, may be mitigated according to the presenter, if the Fed were to gradually and predictably sell the assets on its balance sheet. 

 

Finally, the presenting member also stated that the Fed's monetary policy actions had global ramifications.  It was noted that the recent depreciation of the U.S. dollar has forced many central banks around the globe to re-calibrate their monetary policy stances.

 

 

The meeting adjourned at 12:00 PM.

 

The Committee reconvened at the Department of the Treasury at 5:00 p.m. All of the Committee members were present.  The Chairman presented the Committee report to Secretary Geithner.

 

A brief discussion followed the Chairman's presentation but did not raise significant questions regarding the report's content.

 

The Committee then reviewed the financing for the remainder of the October through December quarter (see attached)

 

The meeting adjourned at 5:15 p.m.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

_________________________________

 

 

Matthew Rutherford

Deputy Assistant Secretary for Federal Finance

United States Department of the Treasury

November 2, 2010

 

 

Certified by:

 

 

___________________________________

 

Matthew E. Zames, Chairman

Treasury Borrowing Advisory Committee

Of The Securities Industry and Financial Markets Association

November 2, 2010

 

 ___________________________________

Ashok Varadhan, Vice Chairman

Treasury Borrowing Advisory Committee

Of The Securities Industry and Financial Markets Association

November 2, 2010

 

 

 

 

 

 

 

 

 

Treasury Borrowing Advisory Committee Quarterly Meeting

Committee Charge – November 2, 2010

 

 

Fiscal Outlook

 

Taking into consideration Treasury's short, intermediate, and long-term financing requirements, as well as uncertainties about the economy and revenue outlook for the next few quarters, what changes to Treasury's coupon auctions do you recommend at this time, if any?

 

 

Outlook for Non-Bank Financial Institutions Post 2008 Financial Crisis

 

Prior to the 2008 financial crisis, a number of entities including hedge funds, SIVs, conduits, money funds, monolines, investment banks, and other non-bank financial institutions played a critical role in providing credit and liquidity across the global financial system.  Many of these entities now play a more diminished role in the allocation of credit.  Please discuss the current state of non-bank financial institutions.  What is the outlook for these nonbank financial institutions and given the outlook, what are the implications for financial markets and the Treasury market.    

 

Potential Impacts of Basel III Regulatory Reform

 

The Basel III banking regulatory framework, which is expected to be implemented by the end of 2012, includes tighter definitions of Tier 1 capital, prescribed leverage and liquidity ratios, counter cyclical capital buffers, and new limits on counterparty credit risk. We would like the Committee to comment on the potential impact of Basel III on financial markets and the Treasury market.

 

Implications of Global Quantitative Easing (QE)

 

Globally, monetary authorities of many large economies are engaging in various forms of quantitative easing in an effort to improve growth, increase employment, and boost capacity utilization.  Please comment on the effectiveness of these efforts.  What are the potential intermediate and long-term impacts for financial markets and the Treasury market, specifically.

 

Financing this Quarter

 

We would like the Committee's advice on the following:

 

• The composition of Treasury notes and bonds to refund approximately $13.8 billion of privately held notes maturing on November 15, 2010.
• The composition of Treasury marketable financing for the remainder of the October 2010- December 2010 quarter, including cash management bills.
• The composition of Treasury marketable financing for the January 2011-March 2011 quarter, including cash management bills.

November 3, 2010
TG-941

Report to the Secretary of the Treasury from the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association

November 2, 2010

 

Dear Mr. Secretary:

 

When the Committee last met in early August, the economy was experiencing a noticeable downshift in the pace of expansion. Since that time, growth in economic activity appears to have stabilized, albeit at a modest rate, and risks of a sharper slowing look to have diminished. Despite the ebbing of downside risks, growth over the last two quarters has been somewhat below trend, and thus the elevated level of slack in labor markets has changed little in recent months. Fiscal tightening and a slowing in the pace of stock building remain as headwinds to growth, though financial conditions have turned more supportive recently, and reinforce the case for continued moderate expansion in coming quarters.

 

Real GDP increased at a 2.0% annual rate in the third quarter, somewhat faster than the 1.7% rate experienced the prior quarter. Domestic demand increased at a 2.5% pace last quarter, though a significant share of that demand growth continued to be met by higher imports. Inventory accumulation made a noticeable contribution to growth for the fifth straight quarter. The substantial lift to manufacturing activity from inventory accumulation now looks to have passed its peak, and recent measures of industrial output have already begun to show some slowing. However, the recent improvement in the ISM manufacturing survey up to 56.9 in October offers a hopeful sign that the slowing in the industrial sector will not be overly severe.

 

Real consumer spending increased at a 2.6% annual rate last quarter, a modest pace though better than preceding quarters. As has been the case throughout the recovery, consumer spending on durables grew solidly last quarter, as households satisfied pent-up demand, while real outlays for consumer services have shown more modest growth. The absence of significant growth in full-time employment continues to instill caution in household behavior, though the recent move up in equity prices may have supported retail sales as of late. The outlook for tax policy – including, but not limited to, the fate of the 2001 and 2003 income tax rate cuts – remains a significant source of uncertainty for the prospects for consumer spending.

 

After falling off abruptly after the end of this spring's homebuyer tax credit, housing demand appears to have steadied at subdued sales rates. Homebuilding activity has changed little and remains at depressed levels, as the inventory overhang limits the need for new housing units. Home price measures have generally been mixed, though show some evidence of slipping back a little after the end of the tax incentive.

 

Growth in business outlays remains very solid, though below the heady rates experienced earlier in the year. The most recent spending data, as well as recent survey measures of capital spending intentions, point to continued good growth in this sector. A low cost of capital, high levels of corporate profitability and the pent-up need to replace worn-out equipment are all supportive of capital expenditure growth. Good fundamentals for the business sector, however, have yet to translate into meaningful growth in full-time hiring by the private sector. The two labor market reports received since the last meeting point to anemic growth in private employment and wages. Soaring productivity in the first year of the recovery obviated the need for firms to increase full-time headcount. This burst of productivity now appears to be fading; whether firms respond by increasing hiring will be pivotal in assessing the vigor of the recovery.

 

Low levels of resource utilization continue to put downward pressure on wage and price inflation. Measures of core consumer price inflation remain very soft and the most recent reading of the core CPI has put the year-ago inflation rate convincingly below one percent. The September core PCE measure has increased only 1.2% over the past year, well below the 1.7-2.0% range that the Fed sees as consistent with their price stability mandate. While recession risks have subsided since the last meeting, deflation risks cannot be dismissed out of hand. That said, stabilizing rental measures, higher import and commodity prices, and relatively stable inflation expectations should all serve as bulwarks against the near-term prospect for an overall decline in the price level. The stability of inflation expectations is not independent of central bank actions, and recent Fed communications appear aimed, in part, at ensuring that expected inflation would not follow realized inflation lower.

 

Since mid-Summer, rhetoric from Fed officials has increasingly signaled the likely prospect of more asset purchases at the November FOMC meeting. The desire to provide more policy accommodation apparently has its source in a downwardly-revised outlook which foresees only grudging improvement in employment and inflation – both of which are running below the Fed's Congressional policy mandate. The prospect for more asset purchases – commonly referred to as QE2 – has been widely-anticipated by financial markets and has likely contributed to the improvement in financial conditions over the last three months.

 

Against this economic backdrop, the Committee's first charge was to examine what adjustments to debt issuance, if any, Treasury should make in consideration of its financing needs. In the near term, given the uncertain economic and fiscal situation, the Committee felt stabilizing nominal coupon issuance at current levels was appropriate. To the extent the Committee has greater clarity, it will likely recommend further reductions to nominal coupon issuance at the February refunding.  Consistent with the August meeting, the Committee felt maintaining flexibility was necessary.

 

There was continued debate regarding the average maturity of outstanding Treasury debt. Although the Committee felt meaningful progress had been made, there was broad agreement that continuing down this path was appropriate. One concerning consequence of raising the average maturity of debt is the decline in T-bills as a percentage of marketable debt. A majority felt that a further lengthening of the average maturity should take precedence.

 

With regard to TIPS, the Committee suggested an auction every month. To accomplish this, the Committee recommended two 30-year TIPS re-openings, in June and October, and a discontinuation of the 30-year TIPS re-opening in August. Likewise, in five year TIPS, the Committee recommended two re-openings, in August and December, and a discontinuation of the October re-opening. This auction schedule should allow for growth in gross TIPS issuance to approximately $120 billion in calendar year 2011 from approximately $86 billion in calendar year 2010.

 

Despite the aforementioned recommendation on TIPS issuance, there was continued debate at the Committee regarding the success of the TIPS program. A number of members cited that relative to nominal issuance, TIPS issuance was more expensive, less liquid, and lacked the flight to quality aspect experienced in 2008. One Committee member recommended further detailed analysis into the costs and benefits of the TIPS program.

The second charge (presentation attached) was to discuss the current state of non-bank financial institutions and the outlook going forward. The member highlighted the remarkable decline in "shadow-bank" liabilities across a variety of short-term secured and unsecured money-market credit instruments. This naturally corresponds with investor preference for bank deposits and U.S. T-bills. The member conveyed that this change in preference was likely structural due to liquidity requirements in 2a-7 funds and anticipated Basel III liquidity coverage ratios.

 

The third charge examined the potential impacts of Basel III (presentation attached). The member documented the tighter definitions of Tier-1 capital, prescribed leverage and liquidity ratios, counter-cyclical capital buffers, additional capital requirements for systemically important firms, and new limits on counterparty credit risk. The member remarked that while institutions had years to comply, markets were pushing institutions to convey and implement adoption plans today.  As a result, extension of liquidity, credit, and capital are being curtailed at a time of slow economic growth. The member included estimates of Basel III's negative impact on growth. Furthermore, members expressed concern that specific U.S. regulatory reforms in conjunction with Basel III adoption may put U.S. financial firms at a competitive disadvantage versus international peers. Lastly, the member pointed out that compliance with liquidity coverage ratios will lead to increased demand by designated institutions for U.S. Treasuries.

 

The fourth charge examined the effect of additional easing measures by monetary authorities on financial markets (presentation attached). The member listed market expectations for the second round of U.S. quantitative easing, the medium-term and long-term expected impacts, as well as the effect on Treasury debt issuance. The member noted concerns around the potential lack of Treasury supply, as well as how the U.S. Federal Reserve exits in the event its objectives are achieved.

 

In the final charge, the Committee considered the composition of marketable financing for the remainder of the October-December quarter and the January-March quarter. The Committee's recommendations are attached.

 

 

Respectfully,

 

 

 

 

 

Matthew E. Zames

Chairman

 

 

Ashok Varadhan

Vice Chairman