eTrade 2008 Annual Report Download - page 60

origination, include: borrowers’ debt-to income ratio, borrowers’ credit scores, housing prices, documentation
type, occupancy type, and loan type. We also review estimated current LTV ratios when monitoring credit risk in
our loan portfolios. In economic conditions in which housing prices generally appreciate, we believe that loan
type, LTV ratios and credit scores are the key factors in determining future loan performance. In the current
housing market with declining home prices and less credit available for refinance, we believe the LTV ratio
becomes a more important factor in predicting and monitoring credit risk.
We believe certain categories of loans inherently have a higher level of credit risk due to characteristics of
the borrower and/or features of the loan. Two of these categories are sub-prime and option ARM loans. As a
general matter, we do not originate or purchase these loans to hold on our balance sheet; however, in the normal
course of purchasing large pools of real estate loans, we invariably ended up acquiring a de minimis amount of
sub-prime loans. As of December 31, 2008, sub-prime(1) real estate loans represented less than one-fifth of one
percent of our total real estate loan portfolio and we held no option ARM loans.
As noted above, we believe loan type, LTV ratios and borrowers’ credit scores are key determinants of future
loan performance. Our home equity loan portfolio is primarily second lien loans
(2)
on residential real estate properties,
which have a higher level of credit risk than first lien mortgage loans. We believe home equity loans with a CLTV of
90% or higher or a FICO score below 700 are the loans with the highest levels of credit risk in our portfolios.
The breakdowns by LTV/CLTV and FICO score of our two main loan portfolios, one-to four-family and
home equity, are as follows (dollars in thousands)(3):
One- to
Four-Family Home Equity
LTV/CLTV at Origination(4)
December 31,
2008
December 31,
2007
December 31,
2008
December 31,
2007
<=70% $ 5,647,650 $ 6,666,212 $ 3,126,274 $ 3,628,619
70% – 80% 7,008,860 8,450,977 1,822,797 2,086,277
80% – 90% 162,966 202,133 3,312,332 3,871,249
>90% 160,368 187,207 1,755,780 2,315,179
Total $12,979,844 $15,506,529 $10,017,183 $11,901,324
Average LTV/CLTV at loan origination(5) 68.8% 79.1%
Average estimated current LTV/CLTV(6) 90.1% 99.7%
One- to
Four-Family Home Equity
FICO at Origination
December 31,
2008
December 31,
2007
December 31,
2008
December 31,
2007
>=720 $ 8,680,892 $10,373,807 $ 6,005,837 $ 6,992,793
719 – 700 1,750,294 2,089,014 1,591,380 1,898,924
699 – 680 1,342,967 1,585,613 1,379,218 1,668,427
679 – 660 784,449 943,538 595,776 757,016
659 – 620 412,514 503,573 432,862 566,030
<620 8,728 10,984 12,110 18,134
Total $12,979,844 $15,506,529 $10,017,183 $11,901,324
(1) Defined as borrowers with FICO scores less than 620 at the time of origination.
(2) Approximately 14% of the home equity portfolio is in the first lien position. For home equity loans that are in a second lien position, we
also hold the first lien position on the same residential real estate property for less than 1% of the loans in this portfolio.
(3) Average estimated current LTV/CLTV at December 31, 2007 is not shown as the data is not readily available.
(4) CLTV at origination calculations for home equity are based on drawn balances.
(5) Average LTV/CLTV at loan origination calculations for home equity are based on undrawn balances.
(6) The average estimated current LTV ratio reflects the outstanding balance at the balance sheet date, divided by the estimated current
property value. Current property values are estimated using the most recent property value data available to us. For properties in which
we did not have an updated valuation, we utilized home price indices to estimate the current property value.
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