Alpharetta, GA-based NetBank Inc., the first online bank to tank, in part, because of mortgage market missteps, is also the first federally-insured thrift to go because of mortgage issues.
NetBank is also the largest federally-insured bank to go under since the Savings and Loan Crisis cost the nation as much as $500 billion beginning decades ago.
The event raises red flags for consumers of the now bankrupt institution, many of them mortgage holders. Former NetBank customers are likely to be bombarded with misleading spam and phishing -- fraudulent emailed attempts to gain sensitive, private information by masquerading as a legitimate company.
On Friday, Sept. 28, 2007, the government shut down NetBank Inc., an online bank with $2.5 billion in assets and $2.3 billion in deposits because of excessive mortgage defaults among other problems. Based in the Atlanta suburb of Alpharetta, and operating exclusively online, NetBank has filed for bankruptcy protection.
Federal regulator, the U.S. Treasury's Office of Thrift Supervision (OTS) named the Federal Deposit Insurance Corporation (FDIC) as receiver.
"NetBank sustained significant losses in 2006 primarily due to early payment defaults on loans sold, weak underwriting, poor documentation, a lack of proper controls, and failed business strategies," said OTS in a prepared statement. The agency oversees more than 800 savings and loans, which are also called "thrifts."
Customers with less than $100,000 deposited with NetBank will be protected by FDIC insurance and have immediate access to all their funds in another online bank that as acquired NetBank assets.
However, there was approximately $109 million in 1,500 deposit accounts that exceeded the insurance limit. Depositing more than $100,000 in any single bank is frowned upon by financial planners and advisors just for this reason.
While these customers will have access to the insured level of deposits, they will receive an immediate payment of 50 percent of the uninsured balance from the FDIC and then become creditors of the receivership for the remainder.
By law, depositors are at the top of the list for claims against the failed bank, but only after administrative costs are settled. Following depositors, general unsecured creditors, subordinated debt and stockholders have dibs, in that order, on whatever is left over.
Another online thrift ING Bank (ING Direct), a subsidiary of the Dutch financial conglomerate, ING Groep NV, will, for $14 million, assume $1.5 billion of NetBank's insured deposits and 104,000 new customers.
Jacksonville, FL-based EverBank, announced on October 1, 2007 that the privately-held financial services firm had acquired approximately $700 million of NetBank mortgage assets.
Earlier this year, EverBank acquired NetBank's mortgage servicing portfolio, and mortgage consumers are advised to expect little change and to continue making mortgage payments as usual.
EverBank had also sought to acquire NetBank's consumer deposit accounts but terminated that attempt after NetBank failed to meet some of the deal's regulatory requirements.
NetBank's collapse was the first major thrift to get the regulatory ax since Superior Bank of Hinsdale, IL, and its $1.9 billion in assets was nailed shut in July 2001.
It's also the largest thrift failure since June 1993, when regulators shut down Western Federal Savings and Loan Association, with assets of $3.8 billion. At the tail end of the S&L bailouts, the thrift was operated by, among others, former U.S. Treasury Secretary William Simon and former Federal Reserve Board Vice Chairman.
Some experts say NetBank had troubles prior to the mortgage market mess. Without a supportive network from a conglomerate like ING Bank's ING Groep NV, NetBank was pioneering uncharted territory.
The mortgage market pushed it into deep water it couldn't navigate.
Neither the OTS, the FDIC, ING Bank, EverBank or NetBank plan to email former NetBank customers or new ING accounts asking them to validate deposits or otherwise request personal, confidential information, such as account numbers, Social Security Number, driver's license number, and the like.
Regulators and banking officials are advising customers not respond to any email asking for personal information and consider them to be fraudulent.
The FDIC has a toll-free number for customers affected by the failure: 1-888-256-6932.
Also online locations where customers can get the straight scoop are ING Bank and the FDIC.
