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Th e M Rep o RT | 41 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t Department ORIGINATION the latest atlanta Bank shuts down in 2015's third closing Real estate loan losses weRe the culpRit in capitol city Bank & tRust's ultimate failuRe. GEORGIA // An Atlanta bank became the third FDIC-insured institution to fail so far this year after regulators shut it down in mid-February. Georgia's Department of Banking and Finance took pos- session of Capitol City Bank & Trust Company, citing the bank's "unsound condition" as a result of losses on real estate loans. Despite receiving help to shore up its capital, it was unable to recover following the financial crash. Acting as receiver, the FDIC announced a purchase and assumption agreement with North Carolina's First-Citizens Bank & Trust Company, which took over the failed bank's eight branches scattered throughout the Atlanta area. With an estimated $262.7 million in total deposits as of year-end 2014 and $272.3 million in total assets, Capitol City is the biggest bank to fail so far this year, topping smaller closings in Florida and Illinois. In addition to taking over the closed bank's deposits, First-Citizens Bank & Trust agreed to purchase essen- tially all assets, FDIC said. The agency estimated its Deposit Insurance Fund will take a $88.9 million hit as a result of the closing. cFPB moves on maryland lender for deceptive advertising, kickbacks newDay financial will pay $2 million afteR violating the Real estate settlement pRoceDuRes act. MARYLAND // The Consumer Financial Protection Bureau (CFPB) announced in February it levied a $2 million civil pen- alty against Maryland-based nonbank mortgage lender NewDay Financial for deceptive mortgage advertising and kickbacks. According to the CFPB, NewDay deceived consumers by failing to disclose its financial relationship with a veterans' organization in direct mail ad- vertising materials. "We are pleased to resolve these technical legal issues with the CFPB," NewDay said in a statement. "As the consent order makes clear, there has never been any allegation or suggestion that the company's actions ever directly harmed our borrowers. We will continue our tireless efforts to serve veterans in the dignified manner they deserve. We are proud that our loans are among the best performing in the industry and remain committed to providing financial solutions that improve the lives of the men and women who have sacrificed so much for our nation." The primary business of NewDay, which is owned by a private company, Chrysalis Holdings, is originating refinance mortgage loans guaranteed by the Veterans Benefits Administration made available exclusively to ser- vice members, veterans, and their surviving spouses. NewDay advertises primarily through direct-mail campaigns, having solicited approximately 50 million consumers through the mail in the three-year period from 2011 to 2014. According to the CFPB, NewDay entered into a marketing agreement with a veterans' association facilitated by a broker company and agreed to pay "lead generation fees" to both organizations, as well as a licens- ing fee to the broker company. This marketing agreement earned NewDay the title of "exclusive lender" for that particular veterans' associa- tion, but NewDay stated in its advertising materials that the title was based on high service standards and excellent value without disclosing its financial relationship with the veterans' organization. NewDay's failure to disclose this financial relation- ship constituted a deceptive act or practice, which is a violation of the Dodd-Frank Wall Street Reform Act of 2010, according to the CFPB. "NewDay profited from the trust that veterans place in their veteran service organization," said CFPB Director Richard Cordray. "Veterans, and any consumers getting a mortgage, deserve honest information about lender endorsements." NewDay's direct-mail ad- vertisements contained recom- mendations from the veterans' organization urging its members to use NewDay's products. These recommendations by the veterans' organization, as well as referral activities through the telephone and the Web, constituted a refer- ral of settlement business, accord- ing to the CFBP. The payments NewDay made to the veterans' organization and the broker com- pany for these activities consti- tuted illegal kickbacks, a violation of the Real Estate Settlement Procedures Act. As a result of the violations of the Dodd-Frank Act, NewDay will terminate its relationships with both the broker company and the veterans' organization. In addition to paying a $2 mil- lion civil penalty to the CFPB's Civil Penalty Fund, NewDay will also end deceptive market- ing practices, end deceptive endorsement relationships, and cease making payments for referrals. ORIGINATION local eDition Georgia's Department of Banking and Finance took possession of Capitol City Bank & Trust Company, citing the bank's "unsound condition" as a result of losses on real estate loans.

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