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TARP Closing, How To Still Get Funds

Many programs of the U.S. Treasury’s Troubled Asset Relief Program (TARP) have closed or are winding down, however there still some money available under a new program launched earlier this year. The Community Development Capital Initiative provides capital to banks, thrifts and credit unions that make small-business loans in communities hardest hit by the recession.

Eligible institutions may receive government investments at an initial dividend rate of 2 percent, which is lower than the 5 percent rate offered through TARP’s Capital Purchase Program. The dividend rate increases to 9 percent after eight years.

To qualify, banks and credit unions must target over 60 percent of their small-business and economic development lending to low-income or moderate-income communities. Participating institutions will not be required to issue warrants as long as they receive $100 million or less in TARP funding.

Banks that received funds under the Capital Purchase Program can transfer their loans to the new program to take advantage of the more favorable terms. Two banks transferred their loan commitments in July, according to the U.S. Treasury’s latest monthly TARP report to Congress.

Mutuals and S corporations are eligible and all program participants are subject to TARP’s executive compensation rules.

Applications must be submitted to the institution’s appropriate federal banking or credit union agency or the U.S. Treasury. Several other programs have closed and the final authority to make TARP commitments expires in October. A TARP program that provided $30 billion for small business lending initiatives has been shut down, but legislation to restore the program outside of TARP is pending in Congress.

The Term Asset-Backed Securities Loan Facility (TALF), which enabled loans with mortgage and asset-backed securities as collateral, also has closed and the commitment for the Securities Purchase Program, designed to help small business lending, has been limited to $400 million.

The financial reform act approved by Congress in July reduced TARP’s total purchase authority to $475 billion and specified that repayment amounts – currently about $200 billion – be used to reduce debt. It also cut off funding for any program that wasn’t started by June 25.

TARP has turned some of its focus to the housing market through the Home Affordable Modification Program, which has helped more than 7 million homeowners refinance their mortgages.

The TARP program also provided $82 billion to General Motors, Chrysler and automotive financing companies and has recovered $11 billion, according to the report to Congress.

The program was established by the Treasury Department through the Emergency Economic Stabilization Act of 2008. The department used TARP investments to help stabilize the financial system. The department has recovered more than 75 percent of TARP bank loans.