November 2012

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THE LATEST ORIGINATION Mortgage Businesses Faring Better as Banks Endure Third-quarter figures indicate flagging numbers of failing businesses in the mortgage industry. Feds Crack Down on Discover Bank The financial institution is ordered to make restitution for allegedly deceptive sales strategies following a federal investigation. R M incidences in 2012 than any year since the mortgage crisis began. In the third quarter, 17 ortgage-related business closings and failures are on track to post fewer mortgage-related businesses failed, down from 25 in the previous quarter and 31 in the same quar- ter last year, according to a report released by Mortgage Daily. Bank closings followed this continue to post few closings: three in the third quarter and one in the second. Year-to-date, 69 businesses oughly 3.5 million consumers will get back $200 million in restitution from Discover Bank after federal agencies recently targeted the financial services institution for allegedly deceptive sales strategies. The FDIC and Consumer have exited the mortgage sector, and Mortgage Daily predicts by year-end the total could be fewer than 90. Last year's total was 137. Mortgage-related business Financial Protection Bureau (CFPB) unveiled a public enforcement action to conclude their joint investigation that started last year. According to a release, decline for the past four consecu- tive quarters. Two nonbank mortgage-related trend, falling from 15 failings in the second quarter to 12 in the third. Both numbers are down from the third quarter of last year, when 26 banks failed. Bank failures have been on the entities closed in the third quar- ter. This is down from nine in the previous quarter but on par with the three posted a year ago. Meanwhile, credit unions closings have not been this low since 2006, the year before the subprime crisis when just 31 clos- ings took place. In 2007, 167 mortgage-related businesses shut their doors, most of them nonbank entities, and the sector has continued to see heightened volumes of closures each year since then. While numbers are currently low, one company's exit from wholesale lending did make a splash last quarter. Wells Fargo left the wholesale lending sector after a $175 million settlement regarding alleged discriminatory lending practices. Discover Bank will also fork over $14 million in civil penalties for masking financial products with fees as freebies, misleading consumers about charges, and even processing orders without their consent in cases. The agencies also charged that Discover Bank held back when it came to information about eligibility requirements, keeping what it took to receive protection benefits under wraps. Many consumers felt misled after trying to stop credit-card payments under duress— something Discover Bank allegedly billed as one of the many benefits to its protection services. Consumers who receive compensation for these claims will receive at least 90 days off their paid fees. Some 2 million customers will receive their money back on fees paid to the bank. A consent order handed down by the federal agencies requires Discover Bank to do away with misleading information in its telemarketing scripts, provide refunds without any further action against consumer credit, and submit to audits. Discover Bank called the consent order an "agreement in principle" with the CFPB and FDIC in a recent statement. "We have worked hard to earn the loyalty of our cardmembers, and we are committed to marketing our products responsibly," David Nelms, chairman and CEO of Discover, said in the statement. "As always, we will continue to strive to deliver the highest standards of customer service and satisfaction." CFPB and FDIC officials remained tight-lipped in a recent teleconference call about the decision, declining to comment about the case. "As we find violations in the law, we'll pursue them," Mark Pearce, director of the FDIC's division of depositor and consumer protection, told reporters. THE M REPORT | 41 ORIGINATION SERVICING ANALYTICS SECONDARY MARKET

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