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.
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Filed Under: fdic, mortgages, online banking
Companies: netbank
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netbank
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.
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More than 100k?
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.
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little more than pennies
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max $100,000
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.
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Thoughts
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Early adopter
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.
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Re: Early adopter
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definitely not because of its web-base
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.
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Uninsured depositors
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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.
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ING Fired Me
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.
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NetBank went down due to its involvement with subprime mortgages
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.
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