Online bank NetBank Inc. was shut down today by the FDIC, who cited an excessive level of mortgage defaults, marking the first U.S. savings and loan failure in three years, and the largest collapse in 14 years.
Per the NetBank website, “On September 28, 2007, NetBank, Alpharetta, GA was closed by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation (FDIC) was named Receiver.”
According to a statement from the Office of Thrift Supervision, the bank suffered substantial losses “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 was quick to say that the NetBank closure wouldn’t mark a new trend in savings and loan failures.
“This does not say anything regarding the health of the thrift industry,” said Kevin Petrasic, the Office of Thrift Supervision’s managing director of external affairs. “This was an isolated situation.”
NetBank had $2.5 billion in total assets and $2.3 billion in deposits as of June 30, according to the FDIC.
ING Bank, a similar online banking institution, will assume $1.5 billion of NetBank’s insured deposits for $14 million, taking on 104,000 new customers in the process.
Earlier this year, NetBank struck a deal to sell its mortgage servicing business to EverBank, though a deal to sell its deposit accounts and other assets fell through.
EverBank will also purchase $700 million in mortgage loans according to the FDIC.
The FDIC said NetBank had $109 million in deposit accounts exceeding the $100,000 FDIC limit, noting that those customers would become creditors in NetBank’s receivership.
For those under the FDIC limit, FDIC Chairman Sheila Bair said, “Customers of NetBank should have confidence and security knowing that they will have access to their insured funds in a timely and orderly manner.”
Earlier this month, on-edge Countrywide depositors flooded branches to pull out money they felt was at risk after the mortgage lender began to show signs of stress and liquidity issues.
NetBank was headquartered in Alpharetta, GA and established in 1996, largely known as the nation’s oldest Internet bank.