eTrade 2008 Annual Report Download - page 58

We also initiated a loan modification program that resulted in an insignificant number of minor
modifications in 2008. Based on the programs we now have in place, we expect the number of modifications to
increase significantly in 2009 when compared to 2008. On February 18, 2009, the U.S. Department of the
Treasury announced the Homeowner Affordability and Stability Plan. The primary focus of this plan is to create
requirements and provide incentives to modify mortgages with the goal of avoiding foreclosure. We are
analyzing the details of this recently announced program and do not yet know whether it would have a significant
impact on our current loan modification programs.
In addition, we continue to review our purchased mortgage loan portfolio in order to identify loans to be
repurchased by the originator. Our review is primarily focused on identifying loans with early payment defaults,
violations of transaction representations and warranties, or material misrepresentation on the part of the seller.
Any loans identified with these deficiencies are submitted to the original seller for repurchase. During the year
ended December 31, 2008, approximately $105.6 million of loans were repurchased by the original sellers.
Underwriting Standards—Originated Loans
During the second half of 2007, we exited our wholesale mortgage origination channel and no longer
originate loans through brokers. During the second quarter of 2008, we exited our retail mortgage origination
business, which represented our last remaining loan origination channel.
We did not originate any loans during the second half of 2008. Prior to the exit of our retail mortgage
origination business in the second quarter of 2008, we did originate approximately $158 million in one- to four-
family loans during the first half of 2008. These loans were predominantly prime credit quality first-lien
mortgage loans secured by a single-family residence.
We priced our loans primarily based on the risk elements inherent in the loan. We evaluated criteria such as,
but not limited to: borrower credit score, loan-to-value ratio (“LTV”), documentation type, occupancy type and
other risk elements. In the first quarter of 2008, we further adjusted our loan origination practices and pricing to
significantly curtail originations of higher risk loans, particularly home equity loans with Fair Isaac Credit
Organization (“FICO”) scores below 700 or a combined loan-to-value ratio (“CLTV”) greater than 80%.
Our underwriting guidelines were established with a focus on both the credit quality of the borrower as well
as the adequacy of the collateral securing the loan. We designed our underwriting guidelines so that our one- to
four-family loans were salable in the secondary market. These guidelines included limitations on loan amount,
LTV ratio, debt-to-income ratio, documentation type and occupancy type. We also required borrowers to obtain
mortgage insurance on higher loan-to-value first lien mortgage loans.
As of December 31, 2008, we did not offer any mortgage loan products to our customers. In the future, we
expect to partner with a third party company to provide access to real estate loans for our customers.
Underwriting Standards—Purchased Loans
In the second half of 2007, we altered our business strategy and halted the focus on growing the balance
sheet. As a result, we did not purchase loans during the year ended December 31, 2008 and we do not anticipate
purchasing a significant amount of loans for the foreseeable future. However, we have significantly tightened our
underwriting policies for any future loan purchases that do occur. These criteria focus on limiting the acquisition
of loans with a high risk of credit loss and require the exclusion of loans with the following attributes: second
lien; home equity line of credit; CLTV ratio above 80%; FICO score below 700 at time of origination; and
documentation type is not full documentation.
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