FDIC shuts down NetBank
NetBank Inc., an online bank with $2.5 billion in assets, was shut down by the government 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. (FDIC) 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. While some Internet-only banks are successful operating one without retail branches can be a difficult strategy to maintain.
The FDIC said 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.
Source: Yahoo Finance
Date: 28.10.2007 [ID: 127]