The House Oversight and Government Reform Committee is investigating the Treasury Department's Making Home Affordable program amid concerns about its effectiveness and efficiency, Committee Chair Edolphus "Ed" Towns (D-N.Y.) announced over the weekend.

MHA's $75 billion Home Affordable Modification Program - which can tap up to $50 billion in funds from the Troubled Asset Relief Program - provides incentive payments to lenders who reduce mortgage payments for responsible borrowers.

Lenders get the incentives when the borrowers' mortgage payments fall to 31 percent of their monthly incomes or less.

The program, introduced in February 2009, seeks to bring relief to homeowners struggling to make mortgage payments, and to prevent communities from suffering the negative effects of foreclosures, such as depressed housing prices and increased crime.

But the program has come under recent scrutiny for failing to live up to those goals. In its most recent report, Treasury indicates that, as of December 2009, there were more than 850,000 active modifications in HAMP -  but less than 67,000 are permanent modifications, with the remainder in trial periods.

The committee is concerned that some lenders have been too slow to modify their loans and are inconsistently applying the program, according to the announcement.

The most recent quarterly report from TARP's Special Inspector General found that, as of the close of 2009, Treasury had signed agreements with 102 lenders and allocated up to $35.5 billion under the HAMP program. Of that sum, just $15.4 million had been spent on incentives for 11,574 of 66,465 permanent modifications, with the remainder to be paid the following quarter.

"While I applaud Treasury's efforts, numerous concerns have been brought to my attention regarding the effectiveness and efficiency of the MHA program and the extent to which it has assisted struggling homeowners," Towns said in a statement.

Towns has requested data on the program from Treasury Secretary Timothy Geithner, and a response is expected by Feb. 18, according his committee's announcement. Among Towns' criticism is the department's refusal to clarify how it defines "net present value" - a determining factor of a homeowner's eligibly in the program. Towns also criticized the program for failing to require that lenders give homeowners an explanation for a denial, and for failing to establish an appeals process.

Relatively few of the eligible delinquent mortgages have translated into permanent modifications. For example, fewer than 2.5 percent of eligible mortgages at Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. have been granted permanent modifications.

Mortgage lenders have blamed the lack of permanent reductions on borrowers who are not filing the proper paperwork to convert trial modifications into permanent ones. In testimony to the House Financial Services Committee in December, Bank of America executive Jack Shakett highlighted the difficulty obtaining necessary documentation from borrowers, citing ineffective communication and misunderstandings about the program. Meanwhile, consumer advocates say problems with the program lie with the lenders, who are not abiding by its rules.

In his letter to Geithner, Towns requests a long list of information including data on trial modifications, data on permanent modifications, criteria used to determine an applicant's eligibility, and the "re-default rate" of borrowers after their mortgages have been modified. Towns also asks about the number of in-house and contract staffers administering the program and ensuring compliance.

Treasury spokeswoman Meg Reilly declined to comment on the investigation until the department formally responds to Towns.

In his Sunday appearance on ABC's "This Week," Geithner maintained that more than 750,000 people have seen homeowner relief in the program - a reference to the number of trial modifications. "Of course we're going to make sure that those temporary modifications translate into permanent modifications," he said.

"Those programs were enormously affective in helping ... pull a housing market that was in near collapse back to the point now where there are signs of stability," he added.

CIT Group Inc., whose bankruptcy all but wiped the Treasury Department's $2.3 billion investment in the company, has hired former Merrill Lynch & Co. head John Thain as its new chief executive.

According to a Securities and Exchange Commission filing, Thain will receive a base salary of $6 million a year -- $500,000 in cash and $5.5 million in restricted stock. He also will be eligible for incentive bonuses, with the target amount for 2010 set at $1.5 million.

CIT, a major lender to small businesses, got $2.3 billion in public aid through the Troubled Asset Relief Program in December 2008. Despite that infusion, its financial condition continued to deteriorate, and it sought refuge in U.S. Bankruptcy Court last November.

The reorganization plan approved the following month rendered the Treasury's preferred shares in CIT worthless, although the agency government came away with certain "contingent value rights'' in the revitalized company.

Bank of America Corp. agreed in September 2008 to acquire Merrill Lynch, which like many other Wall Street firms was struggling because of declining asset values and an abrupt lack of liquidity.

Although Thain joined Bank of America when the $50 billion deal was completed, he was ousted just a few weeks later, amid public outcry over the payment of $3.6 billion in bonuses to Merrill Lynch employees just before the closing.

Bank of America's failure to disclose those payouts to its shareholders prior to a vote on the merger led the SEC to bring civil charges against the company . The SEC filed a second civil action last month, alleging that Bank of America also failed to disclose "staggering financial losses'' at Merrill Lynch that could have caused investors to vote against the deal.

Bank of America agreed to a $33 million settlement with the SEC on the original charges, but the U.S. District Court judge hearing the case rejected the pact.

Bank of America and the SEC asked the judge at a hearing Monday to approve a new $150 million settlement that covers both cases.

Regulators seized just one bank Friday, a small institution in  west-central Minnesota.

The Minnesota Department of Commerce shut down 1^st  American State Bank, in Hancock, Minn., and appointed the Federal Deposit Insurance Corp. as receiver.

The FDIC arranged for Community Development Bank FSB, of Ogama, Minn., to take over the failed bank's two branches, its $$16.3 million in deposits and its $18.2 million in assets.

The two branches will reopen as Community Development Bank locations on Monday.

The FDIC and Community Development Bank entered into a loss-sharing agreement on $11.7 million of 1st American's assets. The FDIC says such deals are designed to maximize the return on the assets by keeping them in the private sector.

1^st American was the 16^th bank to fail this year. The FDIC said the closing would cost its deposit insurance fund an estimated $3.1 million.

The Treasury Department failed to document how decisions were made regarding its involvement in a Federal Reserve loan program, and it hasn't planned for a scenario that could leave the department on the hook for billions of dollars, according to a new Government Accountability Office report released Friday.

The Term Asset-Backed Securities Loan Facility (TALF) was designed to reopen the securitization market to facilitate consumer and business lending. Managed by the Federal Reserve Bank of New York, TALF will provide up to $200 billion in loans to institutions seeking to purchase asset-backed securities and commercial mortgage-backed securities, in exchange for collateral in the form of securities, which would be forfeited if the loans are not repaid.

The Treasury has pledged $20 billion in TARP funds to purchase the TALF loans' underlying collateral if participants default. As of December, the New York had made $61.6 billion in TALF loans and received $100 million in TARP funds for the program.

The report generally gave high marks to the TALF program itself, nothing that it "appears to be contributing to measured improvements in the securitization markets."

However, the GAO concluded that TALF still poses risks.

"A return to 2008 conditions could have adverse impacts on the program, such as significantly reducing the value of TALF collateral, providing an economic incentive for borrowers to walk away from their loans, and requiring TARP funds to be used to buy TALF collateral," the report said.

But more significantly, the GAO report blasted Treasury for a lack of transparency surrounding its involvement in the program. It notes that officials were unable to provide documentation on how decisions regarding its role in TALF were made.

"As we noted in past TARP reports, Treasury has yet to develop systems to ensure the transparency and accountability for TARP activities by implementing a strong, transparent strategic framework with the appropriate oversight mechanisms," the report said.

The report urged the creation of a system to track why Treasury officials make certain decisions and how those decisions fit with the overall goals of the  government's economic stability efforts.

"Unless Treasury documents the rational for major program decisions that it made with the Federal Reserve, it cannot demonstrate accountability for meeting the goals of TALF and could unnecessarily place TARP funds at risk," the GAO wrote.

The report also said Treasury failed to develop a plan to track and report on the performance of TALF collateral. The GAO explained that because Treasury considers it unlikely that it will have to use TARP funds to purchase the collateral, it did not develop plans for that contingency.

The watchdog was especially critical of the lack of planning, noting that Treasury had time to do so, as TALF's first activity did not occur until March 2009.

In its response to the GAO, included as an appendix in the report, Assistant Secretary for Financial Stability Herbert Allison wrote that the Treasury appreciates GAO's suggestions regarding stronger documentation. "Treasury is committed to ensuring that not only TALF but TARP as a whole is administered in a way that protects the taxpayer," Allison wrote.

"Treasury will also continue to enhance its existing reporting on its investments in TALF that strikes an appropriate balance between our goal of transparency and the need to avoid compromising either the competitive positions of investors or Treasury's ability to recover funds for taxpayers," Allison added.

The Financial Crisis Inquiry Commission may issue subpoenas to secure documents and interviews, said Phil Angelides, chair of the bipartisan panel charged with determining the causes of the financial crisis that led to the bailout.

"If we want to talk to someone, we will talk to someone," Angelides said, adding that he anticipates the mere threat of a subpoena will keep the board from having to issue one. "At least at this moment, we feel we're getting good cooperation."

Angelides delivered his remarks Tuesday at an event sponsored by the left-leaning think tank New Democrat Network.

The FCIC will complete the bulk of its investigatory work by Labor Day, Angelides said. It will then start compiling its findings, which are due by Dec. 15.

Angelides, the former treasurer of the state of California, did not say when the next public hearings would occur. But he indicated they would address subprime lending, securitization, government-sponsored enterprises and shadow banking, among other subjects. He also said the panel will likely hold public forums in which academics and other experts with knowledge of the economy and financial markets will offer their insights.

Angelides defended the methodical pace of the panel, which was created in May 2009 but did not hold its first public hearings until last month.

"We're marching to a drummer of integrity and thoroughness," he said, adding that the panel's work is still relevant, even though it is addressing a crisis that came to a head 16 months ago. "People have talked about this crisis as if it was, when in fact, it still is."

In January, the panel held two high-profile hearings. First, the body questioned the heads of Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Bank of America Corp. A day later the panel questioned state and local investigators, Attorney General Eric Holder, Federal Deposit Insurance Corp. head Sheila Bair and Securities and Exchange Commission head Mary Schapiro. Observers noted that the bankers'  hearing did not generate much controversy, but Angelides, echoing earlier comments from FCIC Vice Chairman Bill Thomas, said hearings are  just the "tip of the iceberg" of the commission's work.

In addition to examining the broad forces that led to the economic meltdown, Angelides said his panel will "strip back the veil" to reveal the "actions of real people and real institutions" whose practices contributed to the crisis.

"If we unveil embarrassing facts, so be it," he said.

Angelides also noted that the panel has the authority to refer criminal matters to the Department of Justice but stressed that the FCIC has "a broader mandate than to just find... perps."

"I want to emphasize that much of what happened was not illegal," he said.

The FCIC is drawing inspiration from previous government panels such as the Warren Commission, which investigated the Kennedy assassination; the Kerner Commission, which investigated the 1967 race riots; and the 9/11 Commission, which investigated the circumstances and preparedness issues surrounding the Sept. 11 attacks, Angelides said.

The panel's most crucial task may be its role in helping to restore investors' confidence in Wall Street, so Angelides said he will make its work understandable and accessible to the general public by explaining the causes of the crisis in layman's terms and posting relevant documents online.

"There is a hunger in this country to know what the heck happened," Angelides said.

He alluded to the effect the 1929 stock market crash had on a generation of Americans who avoided Wall Street investing due to their view of stocks as risky and unreliable. "We hope in the end to contribute toward restoring faith in our financial system," Angelides said.

PNC Financial Services Group, Inc. is moving swiftly to raise new capital after reaching agreement with regulators and the Treasury Department on a plan to repay the $7.6 billion it received through the Troubled Asset Relief Program.

PNC has announced plans for a $3 million offering of common stock and a $2 billion offering of senior notes. It also has agreed to sell its global investment-servicing unit to Bank of New York Mellon.  

James E. Rohr, PNC's chairman and chief executive, said that an improving economy and a steadying financial system make this "an appropriate time for us to redeem the preferred shares held by the U.S. Treasury."

PNC does not plan to redeem the accompanying warrant it issued the government when it got the TARP money, which was partly intended to aid its government-orchestrated acquisition of National City Bank.

That warrant gives the government the right to buy about 16.9 million shares of PNC's common stock at an exercise price of $67.33 per share, until December 31, 2018. The company's stock closed Wednesday at $53.71.

PNC announced on Tuesday that it had received approval for its exit from TARP, with $3 billion share sale representing the biggest piece of that plan. On Wednesday, it said the offering would be comprised of 55.6 million shares of common stock at $54 per share. It said the closing was expected to occur on about February 8, 2010.     

As part of the exit plan, the company also agreed to sell its PNC Global Investment Servicing unit, which provides fund-processing products and other services to money managers, broker-dealers and other customers.

Bank of New York Mellon agreed to buy that business for $2.31 billion.  The transaction is currently slated to close some time in the third quarter.

PNC filed plans with the Securities and Exchange Commission today for the sale of $2 billion in senior notes, with half paying a 3.625 percent interest rate and half paying 5.125 percent.

The company said the note sale would provide additional liquidity after the TARP shares are redeemed, probably later this month.

If that redemption is completed, PNC would become the eighth bank among the 10 largest TARP recipients to cash out of the program by repaying all of the government money.

Citigroup Inc., which got $45 billion through TARP, and SunTrust Banks Inc., which got $4.9 billion, also have yet to redeem all of their preferred shares.

The Federal Deposit Insurace Corp. has ordered a New York bank to take "prompt corrective action'' to boost its capital levels or find a buyer or merger partner.

USA Bank, of Port Chester, N.Y., was put on notice Dec. 8, according to a summary of enforcement actions the FDIC released late last week.

Two other banks received similar notices in December - Horizon Bank of Bellingham, Wash., and Columbia River Bank of The Dalles, Ore. Both were seized by regulators this month, and their assets and deposits absorbed by other financial institutions.

The FDIC ordered USA Bank to submit a capital restoration plan to its New York office within 30 days. The bank was told to raise enough capital to qualify as "sufficiently capitalized'' under regulatory standards, through the sale of stock, an equity injection by existing shareholders or other means acceptable to the agency.

Failing that, the FDIC said, the bank must find a buyer or merger partner.

USA Bank had roughly $223 million in assets as of the end of September. It lost $4.07 million in the third quarter of 2009, largely because of higher provisions for loan losses, according to a Securities and Exchange Commission filing. The bank lost $118,484 in the same period of 2008.

Because of the lag in the publication of the FDIC order, USA Bank's 30-day action period has already passed. It is unclear from the bank's   public statements what steps it took.

USA Bank announced in November that it hired an investment banking firm, Laidlaw & Co., to help it find a strategic partner and secure additional capital.

USA Bank lost $8.86 million through the first nine months of 2009, compared with $1.25 million a year earlier.

Cincinnati-based First Financial Bancorp Inc. is seeking to raise $85 million through the sale of common stock.

The company, which operates First Financial Bank, N.A., received $80 million from the government's Troubled Asset Relief Program in December of 2008.  First Financial intends to use the proceeds of the offering to make its exit from the program.

The company reported a profit of $246.5 million last year--more than ten times the $23 million it earned in 2008. First Financial is hoping its strong showing will help pursuade the Treasury Department and regulators to allow the bank to repurchase the preferred stock it issued to the government as part of its participation in TARP.

First Financial warned in its prospectus that although it intends to use the net proceeds from the offering to pay back the government, there is no guarantee it will receive that approval. If regulators deny the request, it will use the proceeds for general corporate purposes.

When First Financial sold the $80 million in preferred stock to the Treasury at the end of 2008, it also issued the government a warrant to purchase 930,233 common shares.  That number decreased to 465,117 (as outlined in the securities purchase agreement between the parties) after the company sold 13.8 million common shares in a public offering this past June.

As such, First Financial does not plan to repurchase the warrant when it redeems the preferred stock.

The company said in its latest earnings report that nonperforming loans totaled $77.8 million at the end of 2009, up from $18.2 million a year earlier Over the same period, however, its total assets rose by nearly $3.3 billion, to $6.86 billion, and deposits nearly doubled, to $5.55 billion.

First Financial took over the assets and deposits of the failed Irwin Union Bank of Louisville, Ky., and Irwin Union Bank and Trust Co., of Columbus, Ind., in September. That transaction added $2.7 billion in assets and $2.1 billion in deposits.

Regulators shut down six more banks on Friday, pushing the toll for January to 15.

The biggest bank to fail was First Regional Bank, of Los Angeles, which had $2.18 billion in assets. The Federal Deposit Insurance Corp. arranged for First Citizens Bank & Trust Co., of Raleigh, N.C., to take over First Regional's  eight branches and $1.87 billion in deposits.

First Citizens also acquired $2.17 billion of the failed bank's assets, with $2 billion of that amount subject to a loss-sharing agreement with the government.

First Regional had been operating for nearly a year under an FDIC cease-and-desist order that called for it to boost its capital levels and strengthen its management.

The other closed banks, in order of size, were Community Bank & Trust, of Cornelia, Ga,; Florida Community Bank, of Immokalee, Fla.; First National Bank of Georgia, of Carrolton, Ga.; American Marine Bank, of Bainbridge Island, Wash; and Marshall Bank N.A., of Hallock, Minn.

The FDIC lined up SCBT N.A., of Orangeburg, S.C., to take over Community Bank and Trust's 36 branches and $1.11 billion in deposits. SCBT, the holding company  for South Carolina Bank and Trust, also bought essentially all of the failed bank's $1.21 billion in assets, with $827.7 million of that covered by loss-sharing.

Premier American Bank N.A., of Miami, acquired Florida Community Bank's 11 branches and $795.5 million in deposits. It agreed to pay a premium of 0.4 percent for the deposits.

Premier American also took $499.1 million of Florida Community's assets. The FDIC entered into a loss-sharing deal on $305.4 million of that amount.

It retained roughly $376 million in assets for later disposition.

Community & Southern Bank, a newly chartered institution in Carrolton, Ga., took over the remains of First National Bank of Georgia. It got the failed bank's 11 branches and its $757.9 million in deposits, paying a 1.25 percent premium for that money.

It also took all of First National's $832.6 million in assets, with $607.4 million of that covered by a loss-sharing deal.

Columbia State Bank, of Tacoma, Wash, absorbed American Marine Bank's 11 branches and $308.5 million in deposits. It agreed to pay a 1 percent premium for the deposits.

It also bought all of American Marine's $373.2 million in assets, with $255.1 million subject to loss-sharing.  Columbia State acquired another failed bank last week, taking over Columbia River Bank in Oregon and its $1 billion in deposits.

United Valley Bank, of Cavalier, N.D., took over Marshall Bank's three branches, its $54.7 million in deposits and its $59.9 million in assets. United Valley paid a 7.35 percent premium for the deposits.

The FDIC also agreed to share losses with United Valley on $23.9 million of the failed bank's assets.

The agency said the six bank closings this week would cost its insurance fund an estimated $1.87 billion, with First Regional in Los Angeles accounting for $825.5 million of that total.