eTrade 2009 Annual Report Download - page 65

In addition, we continue to review our mortgage loan portfolio in order to identify loans to be repurchased
by the originator. Our review is primarily focused on identifying loans with 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. Approximately $74.4 million and $105.6
million of loans were repurchased by the original sellers for the years ended December 31, 2009 and 2008,
respectively.
Underwriting Standards—Originated Loans
During 2008, we exited our retail mortgage origination business, which represented our last remaining loan
origination channel. Prior to the exit of our retail mortgage origination business, we originated approximately
$158 million in one- to four-family loans during the six months ended June 30, 2008. These loans were
predominantly prime credit quality first-lien mortgage loans secured by a single-family residence. In the first
quarter of 2009, we partnered with a third party company to provide access to real estate loans for our customers.
This product is being offered as a convenience to our customers and is not one of our primary product offerings.
We structured this arrangement to minimize our assumption of any of the typical risks commonly associated with
mortgage lending. The third party company providing this product performs all processing and underwriting of
these loans. Shortly after closing, the third party company purchases the loans from us and is responsible for the
credit risk associated with these loans. We originated $125.7 million in loans during the year ended
December 31, 2009 and we had commitments to originate mortgage loans of $34.2 million at December 31,
2009.
Liquidity Risk Management
Liquidity risk is monitored and managed primarily by the ALCO. We have in place a comprehensive set of
liquidity and funding policies that are intended to maintain our flexibility to address liquidity events specific to
us or the market in general. See Item 7 Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital Resources for additional information.
Interest Rate Risk Management
Interest rate risks are monitored and managed by the ALCO. The analysis of interest sensitivity to changes
in market interest rates under various scenarios is reviewed by ALCO. The scenarios assume both parallel and
non-parallel shifts in the yield curve. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk
for additional information about our interest rate risks.
Operational Risk Management
Operational risks exist in most areas of the Company from clearing to customer service. While we make
every effort to protect against failures in the internal controls system, no system is completely fail proof.
Loss of company and customer assets due to fraud represents one of our most significant operational risks.
Fraud losses typically result from unauthorized use of customer and corporate funds and resources. We monitor
customer transactions and use scoring tools which prevent a significant number of fraudulent transactions on a
daily basis. However, new techniques and strategies are constantly being developed by perpetrators to commit
fraud. In order to minimize this threat, we offer our customers various security measures, including a token based
multi-factor verification system. This token creates a unique password which changes every sixty seconds and
must be used along with the customer’s self-selected password to access their account. We believe this system is
an extremely effective tool for preventing unauthorized access to a customer’s account.
The failure of a third party vendor to adequately meet its responsibilities could result in financial loss and
impact our reputation. The Vendor Management group monitors our vendor relationships and arrangements. The
vendor risk identification process includes reviews of contracts, financial soundness of providers, information
security and business continuity.
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