eTrade 2010 Annual Report Download - page 71

During the year ended December 31, 2010, our nonperforming assets, net decreased $257.8 million to $1.3
billion when compared to December 31, 2009. This was attributed primarily to a decrease in nonperforming one-
to four-family loans of $218.5 million and home equity loans of $55.9 million, slightly offset by an increase in
REO and other repossessed assets, net of $17.8 million for the year ended December 31, 2010 when compared to
December 31, 2009.
The following graph illustrates the nonperforming loans by quarter:
Nonperforming Loans Trend
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10
Quarter ended
Nonperforming loans (dollars in millions)
One- to four-family Home equity Consumer and other Total
The allowance as a percentage of total nonperforming loans receivable, net increased from 79.54% at
December 31, 2009 to 85.12% at December 31, 2010. This increase was driven by a decrease in both our one- to
four-family and home equity allowance, which was more than offset by a decrease in both our one- to four-
family and home equity nonperforming loans. The balance of nonperforming loans includes loans delinquent 90
to 179 days as well as loans delinquent 180 days and greater. We believe the distinction between these two
periods is important as loans delinquent 180 days and greater have been written down to their expected recovery
value, whereas loans delinquent 90 to 179 days have not (unless they are in process of bankruptcy). We believe
loans delinquent 90 to 179 days is an important measure because these loans are expected to drive the vast
majority of future charge-offs. Additional charge-offs on loans delinquent 180 days are possible if home prices
decline beyond our current expectations, but we do not anticipate these charge-offs to be significant, particularly
when compared to the expected charge-offs on loans delinquent 90 to 179 days. We expect the balances of one-
to four-family loans delinquent 180 days and greater to remain at historically high levels in the future due to the
extensive amount of time it takes to foreclose on a property in the current real estate market.
During the third quarter of 2010, certain financial institutions announced they were suspending their
foreclosure programs due to concerns that they may have failed to provide adequate documentation in the
foreclosure process. All of our mortgage loans are serviced by third parties, including some of the servicers who
announced they were suspending their foreclosure programs. These issues have not had a significant impact on
our financial position as we are fully indemnified by our servicers for any errors they may have committed while
servicing loans in our portfolio. We may be indirectly affected if these suspensions lead to a delay in our normal
foreclosure process and home prices depreciate during the period of delay. However, we do not believe these
delays, if they occur, would have a significant impact on our financial position.
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