eTrade 2007 Annual Report Download - page 61

The following graph illustrates the nonperforming loans by quarter:
Nonperforming Loans Trend
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
Q106 Q206 Q306 Q406 Q107 Q207 Q307 Q407
Quarter ended
Nonperforming loans as a % of total gross
loans receivable
One- to four- family Home equity Consumer & other Total
The allowance as a percentage of total nonperforming loans receivable, net increased from 91% at
December 31, 2006 to 121% at December 31, 2007. This increase was driven primarily by the allowance for loan
losses in our home equity loan portfolio.
In addition to nonperforming assets in the table above, we monitor loans where a borrower’s past credit
history casts doubt on their ability to repay a loan (“Special Mention” loans). Special Mention loans represented
$612.2 million, or 2%, and $259.0 million, or 1%, of the total loan portfolio at December 31, 2007 and 2006,
respectively, and are generally secured by real estate assets, reducing the potential loss should they become
nonperforming. These loans are actively monitored, continue to accrue interest and remain a component of the
loans receivable balance. The increase in Special Mention loans was due primarily to an increase in the 30-day
delinquency category of real estate loans. We expect migration from this category to more serious delinquency
classifications to continue due to the weak conditions in the residential real estate and credit markets.
Loss Mitigation
Given the deterioration in the performance of our loan portfolio, particularly in our home equity loan
portfolio, we formed a special credit management team to focus on the mitigation of potential losses in the home
equity loan portfolio.
This group is focused on providing loan modification alternatives to borrowers who qualify through our
servicers. These programs include forbearance arrangements, rate and term modifications, re-aging programs and
short sale options. During 2007, an insignificant number of borrowers have utilized these programs.
We are also focused on managing the exposure of undrawn home equity lines of credit. These efforts
include, but are not limited to:
• Restricting lines of credit from additional draws when a borrower fails to make a timely payment. The
criteria applied vary by loan servicer, but they generally range between 15 days past due and 30 days past
due.
• Additional line management strategies under development that would restrict additional draws on open
lines of credit for nonperforming loans based on a change in the property value of the collateral securing
the loan, or a significant change in the borrower’s financial condition and ability to repay the loan.
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