eTrade 2010 Annual Report Download - page 63

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
We have a credit management team that focuses on the mitigation of potential losses in the loan portfolio.
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 our exposure to
open home equity lines from a high of over $7 billion in 2007 to $0.6 billion as of December 31, 2010.
We also have an active loan modification program that focuses on the mitigation of potential losses in the
loan portfolio. We consider modifications in which we made an economic concession to a borrower experiencing
financial difficulty a troubled debt restructuring (“TDR”). During the year ended December 31, 2010, we
modified $666.4 million of loans in which the modification was considered a TDR. We also processed minor
modifications on 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.
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 $41.7 million and $74.4 million of loans were
repurchased by the original sellers for the years ended December 31, 2010 and 2009, respectively. We also
agreed to settlements with two particular originators specific to loans sold to us by those originators. One-time
payments were made to us to satisfy in full all pending and future repurchase requests with those specific
originators. We accepted these offers as we believed the economics of these settlements were to our advantage.
The payments were applied to the allowance for loan losses in the periods we expected charge-offs to occur on
the loans covered by these settlements. During the year we applied $25 million to the allowance for loan losses,
resulting in a corresponding reduction to our net charge-offs as well as our provision for loan losses.
Underwriting Standards—Originated Loans
We provide access to real estate loans for our customers through a third party company. This product is
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 $138.0 million in loans during the year ended December 31, 2010, and we had
commitments to originate mortgage loans of $43.4 million at December 31, 2010.
Liquidity Risk Management
Liquidity risk is monitored and managed by 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.
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