eTrade 2005 Annual Report Download - page 152

Table of Contents
NOTE 9—SERVICING RIGHTS
The following table shows the net amortized cost of the Company’s servicing rights (in thousands):
December31,
2005
2004
Servicing assets:
Balance beginning of period
$
29,659
$
32,773
Purchases (sales)
(1)
(4,118
)
4,614
Amortization of servicing rights
(8,241
)
(7,728
)
Balance end of period
17,300
29,659
Valuation allowance for impairment:
Balance beginning of period
(8,146
)
(5,379
)
Valuation adjustment
(1)
1,872
(2,767
)
Balance end of period
(6,274
)
(8,146
)
Servicing rights, end of period
$
11,026
$
21,513
(1)
Reflects sale of the Consumer Finance business in October 2005. The origination and servicing of RV and marine loans were provided by this business.
The most important assumptions used in determining the estimated fair value are anticipated loan prepayments and discount rates. The
Company uses market-based assumptions and confirms the reasonableness of the Company’s valuation model through management’s
quarterly review, analyses of market quotes and independent broker valuations of the fair value of the servicing rights.
The servicing responsibilities retained by Consumer Finance Corporation for each securitization have been transferred to the
purchaser. Prior to the sale, Consumer Finance Corporation received annual servicing fees of 50 basis points of the prior month’s
balance for the 2004 series trust and all 1999 series trusts and 75 basis points of the prior month’s outstanding balance for the 2001
series trust.
The following summarizes the estimated fair values of the Company’s servicing assets and significant assumptions (dollars in
thousands):
December31,
2005
2004
Mortgage servicing assets:
Fair value
$11,026
$14,761
Constant prepayment rate
19%
23%
Discount rate
3.5%-4.0%
1.0%-1.5%
Consumer servicing assets:
Fair value
—
$6,752
Constant prepayment rate
—
21% - 24%
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