Early Internet Bank Shut Down By The Feds Over Mortgage Defaults
from the ouch dept
If you remember the earlier days of the web, you’ll probably remember NetBank, which was one of (if not the?) first internet-only banks out there. It offered high interest rates in the early days, making it popular with online folks in the late 90s. To be honest, I hadn’t heard much about it lately and wouldn’t even have known if it still existed until I read that the FDIC was shutting the bank down after it had too many mortgage defaults. The FDIC, of course, insures bank accounts up to $100,000 — and all of the insured accounts are going to be transferred to ING (another popular online bank). Unfortunately, it appears that more than a few people had more than $100,000 in their accounts, totally around $109 million in accounts that were uninsured. For the folks who had more than $100,000, they now need to get in line with various other creditors for whatever is left of NetBank — meaning that they’ll probably get pennies on the dollar. While some may paint this as a sign of problems with internet-only banks, it sounds more like the problem was in how NetBank chose to approve mortgages — an area it was hardly alone in screwing up over the last few years.
Filed Under: fdic, mortgages, online banking
Companies: netbank
Comments on “Early Internet Bank Shut Down By The Feds Over Mortgage Defaults”
netbank
Hi,
I was an early adopter and had a Netbank account. supposedly your account is being transferred to ING. Last Saturday you could log into your account and view it, but not do anything else.
More than 100k?
>>Unfortunately, it appears that more than a few people had more than $100,000 in their accounts
You know, usually you can get as many accounts as you want as a bank, and if you have 100k in them, you generally don’t have to pay fees.
little more than pennies
In a letter on the Netbank/FDIC site it notes that depositors with more than 100k will likely get more than 50% of there money back in the form of a dividend on the expected sale of assets. So not as bad as the pennies you are talking about. But still not good. I am glad I didn’t have over 100k there.
max $100,000
I am a netbank (now ING) customer myself. I figuire the whole thing could have been much more painful. As it stands as of 11:00 eastern time sunday I had total access to everything like the issue never happened. I was ablt to use the ATM all weekend. So realy no harm done.
As for the $100,000 max (fortunately (or not) I don’t have that much) it is “per depositor” according to the FDIC blurbs we have been getting. It is NOT “per account” apparently. The first $100,000 IS insured, but any amount AFTER that you have to settle. Right now it looks like they will get fifty cents on the dollar.
As a side note there, retirement accounts are insured to $250,000 per depositor.
What amazed me at first, but then later kinda made sense, is that all banking regulatory agencies are stricly silent about back closings until it actually happened. When I first learned about this I was pissed. Now that I think about it, I guess it is to avoid a “run on the bank.”
All in all I am impressed with the way this mess was handled. Could have been much worse. Information was failrly free flowing. ING Customer service people were well briefed on the situation and knew where to call to get info they didn’t have. The Netbank.com site was fairly well updated with the estimated time that it would return to normal. In my humble opinion everyone involved did the best they could with a really bad situation.
Thoughts
The FDIC insures all accounts to $100,000 yet who in their right mind will leave all their money in one bank or not put their money in a more secure instrument such as treasury bills or bonds? Seeing that NetBank was no brick and mortar establishment, the only assets they’ll have are outstanding non-defaulted loans, on-hand cash, and any other assets such as computers, servers, and any other secured instrument. Good luck to the account holders. And ING? I’d rather put my money in E-Trade (if I had some).
Early adopter
I’ve had Netbank since 2000, at which time they were paying me 6% on my money market account with them. There was the free bill pay and no fees… I love Netbank, I will miss them. Perhaps my only dislikes w/them was the lack of ATMs and there were no branches if you needed a certified check or such, but those were small things.
Its sad that they had such bad dealings w/their mortgage business that it affected the entire company but I’ve benefited over the years from having them for my checking and have nothing bad to say about them.
Re: Early adopter
I agree. Hopefully ING will keep most of the perks on the checkingsavings side of things. Although I did notice that they aren’t promising the same interest rate.
definitely not because of its web-base
bank of internet has no brick and mortar presence, but actually has some really interesting insight on how to conduct banking on the web and establish “branches.”
based on the success of bank of internet, i would definitely point the finger at the mortgage issues before i point at anything related to its only-online model.
no, i’m not a pr shill, but i’ve written stories on BofI and they’re very forward-thinking.
Uninsured depositors
If you fall into this catagory, you get paid first from receivorship funds; there are four tiers that detrmine who gets paid when and uninsured depositors will be paid before any of the other teir catagories.
The bank which had problems was NetBank.com — I just visited that web site on Tue-Oct-09-2007, a web page came up which forwarded me IngDirect.com — In order to open an account with them, you must provide details for another checking account, which they initially post 2 small deposits into, then later they “pull” your initial deposit from you into an Ing account, in order to fund that account. This is similar to the way PayPal does it. But this is just a heads up that you must allow them to “pull” funds from another account — a practice which makes me very nervous.
One of the feedbacks above mentioned BofI.com — BankOfInternet.com — Just so there’s no confusion, they have NOT had problems. To open an account there, you mail in a check, or “push” funds to them — a practice which I am much more comfortable with.
ING Fired Me
I had an account with Netbank years ago. The only reason I closed it was because I decided it was easier to deal with a bank where I could access a bricks and mortar branch with their own ATM network.
ING is kind of a strange bird. Five or six years ago, I opened a savings account with them, put in the minimum $25 and then promptly forgot about the whole thing. Not long ago, I received a Dear John letter from them, informing me that they were returning my money (with interest) and closing my account, since there was nothing they could do for me. I actually thought it was pretty funny – whoever heard of getting fired as a customer.
NetBank went down due to its involvement with subprime mortgages
NetBank had a subsidiary called Meritage mortgage that did a lot of subprime loans. It was their loans not their internet deposit customers that hurt them.
I still don’t know why a customer would keep a lot of money in a traditional account. It is giving free money away to a bank.
Banks like Bank of Internet and ING are very conservative, but if you are worried you can always stay under the limit.