FDIC Shuts Down NetBank Due to Defaults
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[##_1L|1235484269.jpg|width="101" height="102" alt=""|_##]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.
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