eTrade 2009 Annual Report Download - page 64

•Credit Risk Committee—The Credit Risk Committee monitors asset quality trends, evaluates market
conditions, determines the adequacy for allowance of loan losses, establishes underwriting standards,
approves large credit exposures, approves large portfolio purchases and delegates credit approval
authority.
We use various departments throughout the Company to aid in the identification and management of risks.
These departments include internal audit, compliance, finance, legal, treasury, credit and enterprise risk
management. Risk reporting occurs at the business or operating units and is aggregated across the Company
through the enterprise risk management process.
Credit Risk Management
Our primary sources of credit risk are our loan and securities portfolios, where risk results from extending
credit to customers and purchasing securities, respectively. The degree of credit risk associated with our loans
and securities varies based on many factors including the size of the transaction, the credit characteristics of the
borrower, features of the loan product or security, the contractual terms of the related documents and the
availability and quality of collateral. Credit risk is one of the most common risks in financial services and is one
of our most significant risks.
Credit risk is monitored by our Credit Risk Committee. The Credit Risk Committee uses detailed tracking
and analysis to measure credit performance and reviews and modifies credit policies as appropriate.
Loss Mitigation
Given the deterioration in the performance of our loan portfolio, particularly in our home equity loan
portfolio, we formed a special credit management team in early 2008 to focus on the mitigation of potential
losses in the loan portfolio.
This team’s initial focus was to reduce our exposure to open home equity lines. Through a variety of
strategies, including voluntary line closures, automatically freezing lines on all delinquent accounts, and freezing
lines on loans with materially reduced home equity, we have reduced this amount from a high of over $7 billion
in 2007 to $0.9 billion as of December 31, 2009.
We initiated a loan modification program in 2008 that in its early stages, resulted in an insignificant number
of minor modifications. This loan modification program became more active during the first half of 2009 and is
now the primary focus of the special credit management team. We consider modifications in which we made an
economic concession to a borrower experiencing financial difficulty a troubled debt restructuring (“TDR”). As of
December 31, 2009, we had modified $578.9 million of loans in which the modification was considered a TDR.
We also modified a number of loans through traditional collections actions taken in the normal course of
servicing delinquent accounts. These actions typically result in an insignificant delay in the timing of payments;
therefore, the Company does not consider such activities to be economic concessions to the borrowers. 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 believe our loan modification program goals are in line with the
Homeowner Affordability and Stability Plan and we have aligned our servicer guidelines with the government’s
program. Our loan modification programs target borrowers who demonstrate a willingness and ability to meet
their loan obligations and stay in their homes. To date our programs have focused on modifications to the rate
and term of loans, which often results in a lower monthly payment for the borrower.
The team has several other initiatives either in progress or in development which are focused on mitigating
losses in our loan portfolio. Those initiatives include improving collection efforts and practices of our servicers
as well as increasing our loss recovery efforts to minimize the level of loss on a loan that goes to charge-off.
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