Net.Bank, the two-year-old Internet bank, is starting to make a dent in the on-line mortgage business.

Though the $100 million of mortgages it originated in the last six months of 1998 are just a sliver compared with what E-Loan and QuickenMortgage issued in the same period, Net.Bank's residential loans already represent 30.6% of its total portfolio.

And Net.Bank spent little to build its mortgage business, while its competitors underwrote multimillion-dollar marketing campaigns.

"We are just a general-purpose bank that happens to be operating on the Net," said chief executive officer D.R. Grimes. "We have a standard product that we offer."

Modesty aside, Net.Bank's highly competitive rates account for at least some of its success. The bank typically charges 25 to 30 basis points less than its rivals, Mr. Grimes said, because, "we outsource nearly all of our operations, have low operating costs and do not have a lot of employees."

Based in Atlanta, Net.Bank offers standard banking and mortgage services across the United States and in 21 other countries, all with only 31 employees.

"They offer plain-vanilla banking services, so they can afford to offer pretty low rates," said Christopher T. Kelley, a banking analyst with Memphis-based Morgan Keegan & Co.

Net.Bank is solely after people who are already on the Net, he added. These clients are particularly attractive because they are well-educated, earn higher incomes, and are more profitable than typical bank customers, experts say.

According to Deutsche Bank Research, only three of the top 20 mortgage lenders-Countrywide Home Loans, ABN Amro Mortgage Group, and FT Mortgage Cos.-offer loans on-line.

Net.Bank, which is insured by the FDIC and has $283.1 million of assets, sells most of its residential loans within 30 days to such companies as First Mortgage Network, E-loan, and Fidelity Mortgage Services Inc.

However, it does hold some longer-term mortgages on its own books- usually loans that mature in a year or longer. And it took in $250,000 of mortgage origination fees last year.

The bank offers conforming fixed-rate and adjustable-rate mortgages. But plans are under way to also provide home equity loans and lines of credit based on home equity.

Carolina First Corp., the parent of Carolina First Bank, started Net.Bank as a service in October 1996, calling it Atlanta Internet Bank. It was spun off and received a federal bank charter in July 1997, began offering mortgages last May, and changed its name to Net.Bank in the third quarter.

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