eTrade 2012 Annual Report Download - page 77

As a result of an overall decline in delinquent loans and the elimination of certain modification programs in the
first quarter of 2012, modification volumes have decreased significantly in 2012. While the re-delinquency rates
twelve months after modification have remained stable, this metric has become less meaningful as the vast
majority of our modifications are beyond twelve months since modification date. Therefore, we have ceased
using this measure as a key indicator of TDR performance. The overall delinquency status of TDR loan
modifications is now the primary measure we use to evaluate the performance. The following table shows TDR
loan modifications by delinquency category as of December 31, 2012 and 2011 (dollars in millions):
Modifications
Current
Modifications
30-89 Days
Delinquent
Modifications
90-179 Days
Delinquent
Modifications
180+ Days
Delinquent
Total Recorded
Investment in
Modifications
December 31, 2012
One- to four-family $ 838.0 $105.2 $43.9 $79.1 $1,066.2
Home equity 195.0 15.1 6.2 7.1 223.4
Total $1,033.0 $120.3 $50.1 $86.2 $1,289.6
December 31, 2011
One- to four-family $ 767.3 $ 88.2 $33.2 $84.3 $ 973.0
Home equity 351.6 51.4 34.5 8.4 445.9
Total $1,118.9 $139.6 $67.7 $92.7 $1,418.9
Included in allowance for loan losses was a specific valuation allowance of $171.4 million and $320.1
million that was established for modifications at December 31, 2012 and 2011, respectively. The specific
valuation allowance for these individually impaired loans represents the forecasted losses over the remaining life
of the loan, including the economic concession to the borrower. The following table shows TDR loan
modifications and the specific valuation allowance by loan portfolio as well as the percentage of total expected
losses as of December 31, 2012 and 2011 (dollars in millions):
Recorded
Investment in
Modifications
before Charge-
offs Charge-offs
Recorded
Investment in
Modifications
Specific
Valuation
Allowance
Net Investment in
Modifications
Specific Valuation
Allowance as a %
of Modifications
Total
Expected
Losses
December 31, 2012
One- to four-family $1,383.3 $(317.1) $1,066.2 $ (89.7) $ 976.5 8% 29%
Home equity 382.6 (159.2) 223.4 (81.7) 141.7 37% 63%
Total $1,765.9 $(476.3) $1,289.6 $(171.4) $1,118.2 13% 37%
December 31, 2011
One- to four-family $1,209.4 $(236.4) $ 973.0 $(101.2) $ 871.8 10% 28%
Home equity 490.4 (44.5) 445.9 (218.9) 227.0 49% 55%
Total $1,699.8 $(280.9) $1,418.9 $(320.1) $1,098.8 23% 35%
The recorded investment in TDR loan modifications includes the charge-offs related to certain loans that
were written down to the estimated current value of the underlying property less estimated costs to sell. These
charge-offs were recorded on modified loans that were delinquent in excess of 180 days or in bankruptcy and on
TDRs when certain characteristics of the loan, including CLTV, borrower’s credit and type of modification, cast
substantial doubt on the borrower’s ability to repay the loan. The total expected loss on TDR loan modifications
includes both the previously recorded charge-offs and the specific valuation allowance. Total expected losses on
TDR loan modifications increased slightly from 35% at December 31, 2011 to 37% at December 31, 2012.
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