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Subprime Unit Closing

NetBank closes Meritage

November 6, 2006

By MortgageDaily.com staff

NetBank Inc. is winding down its nonprime mortgage subsidiary.

A majority of Meritage Mortgage's sales force and a smaller but significant number of the operations support staff will be extended employment offers by Nov. 15 through a personnel placement agreement with Lime Financial Services, NetBank announced today.

The move mostly ends its nonconforming mortgage financing operations, though the agreement did not cover the full scope of the operations and there is still personnel and other commitments at hand, the Atlanta-based company said.

"Since the beginning of October, we have been working aggressively to refocus the company on its core banking and conforming mortgage competencies," NetBank Chief Executive Steven F. Herbert said in the announcement.

"We said then that our priorities were to exit or spin off any underperforming or noncore businesses so we could restore the company to profitability as quickly as possible and to improve the company's overall operating profile," he added. Exiting the nonconforming mortgage business contributes to those goals in "a meaningful way, especially when you consider the steepness of the quarterly losses we have been incurring in the nonconforming channel."

NetBank's restructuring has also included the sale of 70 percent of its mortgage servicing rights.

Along with the transaction related to Meritage Mortgage, NetBank also executed an agreement to effectively end its RV, boat and aircraft financing operations. The company expects to record pretax expense of $6.0 million to $7.5 million in the fourth quarter to cover remaining obligations of the two finance businesses.

"We were happy to execute the transactions that we did since they saved us real dollars in severance and shutdown costs," Herbert said in the announcement today. "But, regardless of the deals, it was critical for us to move quickly on these businesses. The cost of carrying them for another quarter or two would have destroyed more value than we probably could have derived under the best possible transaction circumstances."

Nonprime and Subprime News | Subprime Statistics
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