Updated: 9:20 p.m. ET Sept. 28, 2007
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.
ING assumes insured deposits
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.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.www.msnbc.msn.com/id/21039715/