eTrade 2007 Annual Report Download - page 141

Reserves
For all legal matters, reserves are established in accordance with SFAS No. 5. Once established, reserves are
adjusted based on available information when an event occurs requiring an adjustment.
Commitments
In the normal course of business, the Company makes various commitments to extend credit and incur
contingent liabilities that are not reflected in the consolidated balance sheet. Significant changes in the economy
or interest rates influence the impact that these commitments and contingencies have on the Company in the
future.
Loans
The Company had the following mortgage loan commitments (dollars in thousands):
December 31, 2007(1)
Fixed Rate Variable Rate Total
Originate loans $294,283 $107,891 $402,174
Sell loans $ 88,155 $ 4,500 $ 92,655
(1) The Company had no commitments to purchase loans at December 31, 2007.
Securities, Unused Lines of Credit and Certificates of Deposit
At December 31, 2007, the Company had commitments to purchase $0.5 billion and sell $2.0 billion in
securities. In addition, the Company had approximately $4.0 billion of certificates of deposit scheduled to mature
in less than one year and $6.8 billion of unfunded commitments to extend credit.
Guarantees
The Company provides guarantees to investors purchasing mortgage loans, which are considered standard
representations and warranties within the mortgage industry. The primary guarantees are as follows:
• The mortgage and the mortgage note have been duly executed and each is the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms. The mortgage has been duly
acknowledged and recorded and is valid. The mortgage and the mortgage note are not subject to any right
of rescission, set-off, counterclaim or defense, including, without limitation, the defense of usury, and no
such right of rescission, set-off, counterclaim or defense has been asserted with respect thereto. If these
claims prove to be untrue, the investor can require the Company to repurchase the loan and return all loan
purchase and servicing release premiums.
• Should any eligible mortgage loan delivered pay off prior to the receipt of the first payment, the loan
purchase and servicing release premiums shall be fully refunded.
• Should any eligible mortgage loan delivered to an investor pay off between the receipt of the first
payment and a contractually designated period of time (typically 60—120 days from the date of
purchase), the servicing release premiums shall be fully refunded.
Management has determined that quantifying the potential liability exposure is not meaningful due to the
nature of the standard representations and warranties, which rarely result in loan repurchases. The current
carrying amount of the liability recorded at December 31, 2007 is $0.2 million, which we consider adequate
based upon analysis of historical trends and current economic conditions for these guarantees.
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