eTrade 2011 Annual Report Download - page 129

The following table represents the breakdown of the total recorded investment in loans receivable and
allowance for loan losses by loans that have been collectively evaluated for impairment and those that have been
individually evaluated for impairment (dollars in thousands):
Recorded Investment
Allowance for Loan
Losses
December 31, December 31,
2011 2010 2011 2010
Loans collectively evaluated for impairment $11,736,731 $15,116,217 $502,673 $ 674,202
Loans individually evaluated for impairment (TDRs) 1,418,892 1,036,871 320,143 356,967
Total recorded investment in loans receivable $13,155,623 $16,153,088 $822,816 $1,031,169
The weighted-average remaining maturity of mortgage loans secured by one- to four-family residences was
296 and 307 months at December 31, 2011 and 2010, respectively. Additionally, all loans outstanding at
December 31, 2011 and 2010 in the portfolio were serviced by other companies.
During the years ended December 31, 2011 and 2010, the Company agreed to settlements with three particular
originators specific to loans sold to the Company by those originators. One-time payments were made to the
Company satisfy in full all pending and future repurchase requests with those specific originators. During the years
ended December 31, 2011 and 2010, the Company applied $46 million and $25 million to the allowance for loan
losses, resulting in a corresponding reduction in net charge-offs as well as provision for loan losses.
In the second quarter of 2010, the Company sold a total of $232 million of its one- to four-family loans to
Fannie Mae, resulting in a gain of $6.5 million which is recorded in the gains on loans and securities, net line
item on the consolidated statement of income (loss). Of the $232 million in sales to Fannie Mae, $216 million
were in the form of an agency securitization. The Company received the agency mortgaged-backed securities
created from the securitization as proceeds from the sale and classified them as available-for-sale securities on
the consolidated balance sheet. The Company structured this transaction to minimize the risk associated with
credit losses of the underlying loans as Fannie Mae guarantees the payments from the resulting securities. The
Company did not consolidate the agency securitization as the Company concluded that it was not the primary
beneficiary under the variable interest entity model. For the foreseeable future, the Company does not plan to
securitize or sell any of the remaining one- to four-family loans in its held-for-investment portfolio.
Credit Quality
The Company tracks and reviews factors to predict and monitor credit risk in its mortgage loan portfolio on an
ongoing basis. These factors include: loan type, estimated current LTV/CLTV ratios, delinquency history,
documentation type, borrowers’ current credit scores, housing prices, loan acquisition channel, loan vintage and
geographic location of the property. In economic conditions in which housing prices generally appreciate, the
Company believes that loan type, LTV/CLTV ratios, documentation type and credit scores are the key factors in
determining future loan performance. In a housing market with declining home prices and less credit available for
refinance, the Company believes the LTV/CLTV ratio becomes a more important factor in predicting and
monitoring credit risk. The factors are updated on at least a quarterly basis. The Company tracks and reviews
delinquency status to predict and monitor credit risk in the consumer and other loan portfolio on an ongoing basis.
The home equity loan portfolio is primarily second lien loans on residential real estate properties, which
have a higher level of credit risk than first lien mortgage loans. Approximately 14% of the home equity portfolio
was in the first lien position as of December 31, 2011. The Company holds both the first and second lien
positions in less than 1% of the home equity loan portfolio. The home equity loan portfolio consists of home
equity installment loans and home equity lines of credit.
Home equity installment loans are primarily fixed rate and fixed term, fully amortizing loans that do not
offer the option of an interest-only payment. Home equity lines of credit convert to amortizing loans at the end of
the draw period, which ranges from 60 months to 120 months. At December 31, 2011, the vast majority of the
home
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