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View Full Version : FDIC Shuts Down NetBank Due to Defaults


ernestrp
09-28-07, 06:39 PM
FDIC Shuts Down NetBank Due to Defaults
By ALAN ZIBEL (AP Business Writer)
From Associated Press
September 28, 2007 5:27 PM EDT
WASHINGTON - NetBank Inc., an online bank with $2.5 billion in assets, was shut down by the government on Friday because of an excessive level of mortgage defaults.

It was the largest savings and loan failure since the tail end of the industry's crisis more than 14 years ago. Federal regulators appointed the Federal Deposit Insurance Corp. as a receiver for Alpharetta, Ga.-based NetBank.

Customers with less than $100,000 deposited with NetBank will be protected by FDIC insurance.

While dozens of mortgage companies have closed due to soaring defaults of home loans made to borrowers with weak, or subprime, credit, those problems previously had occurred among non-bank lenders such as New Century Financial Corp. NetBank, in contrast, is federally regulated.

Loose mortgage standards in recent years - especially among lenders catering to subprime borrowers - have resulted in a spike in home loan defaults.

Bert Ely, a banking consultant based in Alexandria, Va., said NetBank was in "deep trouble" before the subprime mortgage market's woes accelerated this year. Regulators, he said, "should have closed it a long time ago."

While some Internet-only banks are successful, he said, operating one without retail branches can be a difficult strategy to maintain.

The FDIC said Friday that $1.5 billion of NetBank's insured deposits will be assumed by ING Bank, also a major online bank that is part of Dutch financial giant ING Groep NV. ING will pay $14 million for the deposits and receive 104,000 new customers.

NetBank, which had no physical branches, sustained significant losses last year "primarily due to early payment defaults on loans sold, weak underwriting, poor documentation, a lack of proper controls, and failed business strategies," the Office of Thrift Supervision said in a statement.

The FDIC said NetBank had $2.5 billion in total assets and $2.3 billion in deposits as of June 30.

The OTS oversees about 830 savings and loan institutions, or thrifts, ranging in size from giants like Seattle-based Washington Mutual Inc. to small community banks. By law, thrifts must have at least 65 percent of their lending in mortgages and other consumer loans.

The last major thrift to be closed by regulators was Superior Bank of Hinsdale, Ill. It had total assets of $1.9 billion and was shut down in July 2001. Its failure has so far cost the FDIC's insurance fund an estimated $273 million.

In June 1993, regulators shut down Western Federal Savings and Loan Association, which had total assets of $3.8 billion. That thrift's owners included former Treasury Secretary William Simon and former Federal Reserve Board Vice Chairman Preston Martin.

NetBank had reached a deal to sell its deposit accounts and other assets to privately held EverBank of Jacksonville, Fla., but EverBank announced this month that the deal fell through.

EverBank in July completed its acquisition of NetBank's mortgage servicing business, and the FDIC said Friday that EverBank will purchase about $700 million in mortgage loans.

"Customers of NetBank should have confidence and security knowing that they will have access to their insured funds in a timely and orderly manner," FDIC Chairman Sheila Bair said in a prepared statement.

The FDIC insures bank deposits of up to $100,000.

NetBank had $109 million in deposit accounts that exceeded the FDIC limit. Those customers will become creditors in NetBank's receivership, the FDIC said.

The FDIC has a toll-free number for customers affected by the failure:1-888-256-6932.

Anyone have an account with NetBank? I have been moving my accounts to internet banks but now I'am starting to wonder about their stability.

-popcorn-

DVD Josh
09-28-07, 06:49 PM
This is why I have an e-savings account with Citibank. It may not have the highest interest, but they are all over the place.

stevevt
09-28-07, 08:35 PM
This is why I have an e-savings account with Citibank. It may not have the highest interest, but they are all over the place.

It's probably piling on to say this after the article mentioned it around 500 times, but as long as a bank is FDIC-insured and you have less than $100K in it, you're fine. Go for the highest interest you can find.

emanon
09-28-07, 09:19 PM
Ouch.

Been banking with Netbank for ~8 years now. Have both checking and money market accounts, as well as a car loan.

I'd been thinking about switching over to a local bank that's offering 5.01% on checking, but never worked up the initiative to actually do it. I guess this is my kick in the ass.

big whoppa
09-28-07, 10:37 PM
I had accounts at Netbank. Closed them a while ago since their interest rates weren't very competitive.

DVD Josh
09-29-07, 12:21 AM
It's probably piling on to say this after the article mentioned it around 500 times, but as long as a bank is FDIC-insured and you have less than $100K in it, you're fine. Go for the highest interest you can find.

I don't know the answer to this, but if I had a NB account, could I access my funds right now? Tomorrow? Next week? When?

It's not just the insurance I care about, it's the access to funds. I bank with Citi and it's an instant transfer in and out, no fees at the ATMs, etc.

WallyOPD
09-29-07, 12:24 AM
I don't know the answer to this, but if I had a NB account, could I access my funds right now? Tomorrow? Next week? When?

It's not just the insurance I care about, it's the access to funds. I bank with Citi and it's an instant transfer in and out, no fees at the ATMs, etc.

From the notice on Netbank's site it looks like the funds will be available on Sunday evening.

Michael T Hudson
10-03-07, 10:21 AM
I had Netbank as well from since 99. I closed the account last year after switching to WAMU.

Michael T Hudson
10-03-07, 10:29 AM
This was on fat wallet

What’s next
As a former NetBank Customer, your deposit(s) will be transitioned to ING DIRECT account(s) safely and securely. We anticipate a seamless transition for NetBank’s Customers into the ING DIRECT family.

Business as usual
During the transition over the next 60 days, you can continue to access and manage your accounts the same way you always have as a NetBank Customer at netbank.com. Use your ATM card or Visa® check card, checks, online bill pay, wire transfers (foreign wire transfers will no longer be processed) and standard deposits as usual. Any automated features, such as bill payments or direct deposit, will continue as scheduled.

Looking ahead
We’ll be contacting you within the next 60 days to provide you with all the details of your account(s), and the services and features you can take advantage of.

Still have questions? Visit ingdirect.com/netbank to learn more. Or give us a call at 1-866-327-4599 to speak with an Associate. We’re available from 8 AM – 8 PM, 7 days a week.

We look forward to providing you with new ways to save your money.

Arkadi Kuhlmann
President and CEO