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Wholesaler Winding Down

Closing wholesale operation

May 22, 2007


NetBank Inc. is selling its deposits, shutting down its wholesale mortgage operations and taking a loss of more than $50 million.

EverBank has agreed to acquire the checking accounts, certificates of deposit, money market accounts and IRA accounts from the Atlanta-based company, according to an announcement Monday. The deal, which will result in a $60 to $70 million charge for NetBank, is expected to close next month.

Jacksonville, Fla.-based EverBank, with a reported $6 billion in assets, claims to be of the largest privately-held financial services firms in the country. Earlier this year it acquired reverse mortgage lender BNY Mortgage Co. and apartment lender Apartment Lending Group.

The move comes as the online bank was under intense regulatory pressure to protect deposits, NetBank, opened in 1996, noted.

"The company has been under extreme financial pressure for more than a year due to a difficult mortgage origination market, a flat yield curve environment and other factors," the statement said, noting this strategic alternative protects "the company's equity position from continued erosion."

Also included in the transaction is the $3.2 billion held-for-investment loan portfolio, the small business financing operation and $2.5 billion in deposits.

The company said it has begun shutting down NetBank Funding Services. The wholesale and correspondent operation, which has stopped accepting new business, is expected to be closed within 60 days -- though it will honor existing locks.

"Our mortgage operations continue to struggle in the face of a highly competitive marketplace, especially the third-party origination channel," said NetBank CEO Steven F. Herbert in the statement.

A subprime subsidiary of the company, Meritage Mortgage, was closed down last year, while an $8.2 billion servicing portfolio was unloaded in October.

NetBank is fighting a lawsuit filed by DLJ Mortgage Capital for $4 million. DLJ alleges NetBank failed to forward borrower payments, neglected to pay mortgage insurance on loans and refused to comply with requests for information regarding the payments and proof of mortgage insurance, according to a spokesman for DLJ's parent.

After consummation of the EverBank transaction, Herbert said the company will devote more attention to ongoing litigation started in 2002 over $150 million in claims against three insurers regarding bad lease receivables acquired from Commercial Money Center Inc.

"Our remaining businesses will include our mortgage servicing operation, along with our retail prime mortgage franchise, Market Street Mortgage," Herbert added.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.

e-mail: [email protected]

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