Bloomberg News reports:

Freddie Mac continues to foreclose on homeowners and make plans to evict them, drawing fire from legal aid groups who say the moves violate the spirit of a moratorium the company agreed to in November. While Freddie has suspended sales of foreclosed properties and isn’t locking people out of their homes, the mortgage- finance company continues to initiate court cases against homeowners and pursue existing cases, company spokesman Brad German said.

•  “The actual sale, the actual eviction has stopped, but the process continues,” German, the Freddie spokesman, said yesterday. “The moratorium does not affect the normal process of legal filings. But no one is being evicted, the homes are not being sold,” he said.

• By contrast, Fannie [Mae] has worked to halt court proceedings and notify borrowers and tenants that they may be eligible to stay in their homes if they agree to sign a new monthly lease at market rates, according to [legal aid attorneys]. When cases have fallen through the cracks and court action continued, Fannie is “literally sending people out to knock on doors to make them aware of the policy and, when they’re not home, we leave flyers with information about their options,” said Fannie spokesman Brian Faith.

For more, see Freddie Foreclosures, Eviction Plans Continue During Moratorium.

In Merrimack County, New Hampshire, MSNBC.com reports:

In marketing, advertising and testimony before Congress, Countrywide Home Loans has said repeatedly that it is working hard to modify the mortgages of financially strapped borrowers caught up in the subprime meltdown.

• But in a New Hampshire court, attorneys for the lending giant are singing a different tune, describing such assurances as “mere commercial puffery.”

• Saying the modification offers are “only Countrywide’s vague advertisements,” attorneys for the lender are asking the court to throw out a lawsuit alleging breach of good faith, fraud, negligence and misrepresentation, which was filed on behalf of a family that was refused a loan modification by the California-based company.

• “It’s breathtaking,” attorney Mary Frances Stewart of Concord, N.H., said of Countrywide’s response to the lawsuit she and co-counsel Krista Atwater filed in Merrimack County Superior Court. In its response, “Countrywide is saying, ‘We don’t have any obligation or even necessarily the intention of actually modifying these loans,’ and yet they’re representing that they do.”

For more, see In court, Countrywide calls its ads ‘puffery’ (Defending lawsuit, mortgage company mocks loan modification assurances) (go here for entire story on one web page).

Bloomberg News reports:

• Stanford Kurland, the former Countrywide Financial Corp. president, says his new company’s purchase of $558 million in home loans issued by a failed Nevada bank will be a springboard for further growth. Private National Mortgage Acceptance Company LLC [“PennyMac“], based in Calabasas, California, is paying less than 50 cents on the dollar for loans that the Federal Deposit Insurance Corp. acquired last July after First National Bank of Nevada collapsed.

***

• Kurland declined to discuss financial details of the transaction, which FDIC spokesman David Barr said doesn’t involve any sharing of possible losses. The FDIC will be paid 80 percent of loan cash flow until an undisclosed level of payments are received, then 60 percent thereafter, Barr said.

For more, see PennyMac, Led by Ex-Countrywide Head, Sees Promise in Bad Loans.

The Wall Street Journal reports:

• A Senate bill aimed at giving strapped homeowners more leverage in renegotiating their mortgages cleared a hurdle Thursday when Citigroup Inc. dropped its opposition. The legislation, which is being advanced by top Senate Democrats, would let judges set new repayment terms for mortgage holders in bankruptcy court.

***

• The proposal from Sen. Dick Durbin, an Illinois Democrat, to allow so-called mortgage “cramdowns,” would apply only to homeowners who have filed for Chapter 13 bankruptcy protection.

***

• The Democrats’ proposal allows judges to approve plans that make major reductions in home-loan debts, after homeowners certify that they have attempted to contact their lenders about a mortgage reduction before bankruptcy proceedings begin. […] The cramdown bill would apply to all mortgage loans, including subprime loans, written any time prior to the bill’s date of enactment.

• In a concession to lenders, a mortgage debt could be forgiven entirely only if the lender was found committed a major violation of the Truth in Lending Act. Under the bill’s original language, the entire mortgage debt could be wiped away based on a violation of any number of state and federal consumer lending laws.

For more, see Plan to Cut Foreclosure Rate Clears Key Hurdle.

See also:

• BusinessWeek: Does Citigroup Stand Alone? Industry Balks at Bankruptcy Bill,
• New York Times: Citi Reaches Deal With Lawmakers on Home Loans.

The Wall Street Journal reports:

• Fannie Mae is testing a new program to stave off foreclosures by preapproving “short sales” of homes, in which mortgage companies allow homeowners to sell houses for less than the value of existing loans, forgiving the difference.

***

• Two pilot projects, in Phoenix and Orlando, Fla., began at the end of December and will last for three months. The test run is limited to properties secured by a Fannie Mae mortgage and serviced by Countrywide Financial Corp., a subsidiary of Bank of America Corp. Only homes already listed at less than the unpaid balance on the mortgage are eligible for the pilot. So far, about 400 homes have qualified for preapproval between the two markets.

For more, see Fannie Mae Tests ‘Short Sales’ as Alternative to Foreclosures (subscription may be required; for those without a subscription, try here, then click link for the story).

The Federal Trade Commission announced:

• Three mortgage loan advertisers that allegedly deceptively touted low monthly payments and low rates without fully disclosing loan terms have agreed to settle Federal Trade Commission charges that their ads violated federal law.(1)

• According to the FTC, the ads represented that people could receive mortgage loans at the terms prominently stated in the ads. However, in violation of the FTC Act, the ads allegedly failed to disclose, or failed to disclose adequately, that the advertised low monthly payment amounts and low rates apply only for a limited time, after which they will increase, and that the advertised payment amounts and rates did not include the interest owed each month, with the interest added to the total loan balance.

For more, see Three Home Loan Advertisers Settle FTC Charges; Failed to Disclose Key Loan Terms in Ads.

(1) For links to the relevant court documents in the three cases (ie. consent orders, original FTC complaints, etc.), see:

• American Nationwide Mortgage Co.;
• Michael Gendrolis, doing business as Good Life Funding; and
• Shiva Venture Group, Inc., doing business as Innova Financial Group.

The New York Times reports:

• Congress should ease certain tax laws governing defaults on mortgages, credit cards and other consumer debt to help Americans who are struggling in the economic downturn, the watchdog agency of the Internal Revenue Service said Wednesday. In its annual written report, the agency, the National Taxpayer Advocate, said that without the changes hundreds of thousands of Americans could mistakenly pay taxes this year on their canceled debts, adding to their financial malaise.

• The I.R.S. generally treats canceled debts as subject to federal income tax unless the taxpayer is insolvent or in bankruptcy proceedings. But Nina E. Olson, who leads the watchdog agency, wrote that most taxpayers eligible to exclude canceled debts from their overall taxable income were unaware that they must file an obscure, complex form(1) with the I.R.S.

***

• Congress has already provided some debt relief to homeowners through the Mortgage Forgiveness Debt Relief Act of 2007, which exempts from taxes any debts reduced or canceled during foreclosure or mortgage restructuring. But the exemption applies only if proceeds are used to acquire or improve a principal residence — something home buyers do not always do.(2)

For more, see Gentler Tax Laws Urged on Debt Default.

Go here for more on Dodging The Income Tax On Real Estate Foreclosure & Short Sales.

(1) See IRS Form 982, “Reduction of Tax Attributes Due to Discharge of Indebtedness.”

(2) Ms. Olson said that it appears that most subprime borrowers use a portion of their loans for other purposes (e.g., to pay off car loans, credit card balances, student loans or medical bills), the story reports.

In Seward, Nebraska, the Seward County Independent reports:

• Heartland Park Senior Living Community is among four senior assisted living centers in Nebraska fighting off foreclosure by filing Chapter 11 bankruptcy. Seward Senior Living LLC which goes by the Heartland Park name is owned by Sunwest Management Inc. […] The other three in Nebraska include: Willow Ridge Senior Living Community in McCook; The Oaks Senior Living Community in Wayne; and Northridge Senior Living Community in Kearney.

***

• Sunwest also filed for bankruptcy on 14 other locations nationwide. Sunwest serves more than 17,000 residents in more than 250 communities in 37 states.

For more, see Senior communities fighting off foreclosure.

Go here for other posts on the financially strapped Sunwest Management and its senior care facilities.

Fannie Mae and Freddie Mac have announced yesterday that they would extend the suspension of foreclosure sales and evictions from single-family properties involving mortgages they own or have securitized through January 31, 2009. Freddie Mac press release indicates that their announcement also applies to 2-4 unit properties with Freddie Mac-owned mortgages, and their suspension does not apply to vacant single family properties. For the details, see:

• Fannie Mae press release: Fannie Mae Extends Foreclosure Sale and Eviction Suspension
• Freddie Mac press release: Freddie Mac Extends Suspension of Single Family Foreclosure Sales Evictions Until January 31 2009.

The Wall Street Journal reports:

• Citigroup Inc. is leading other lenders in advanced talks with key senators on legislation that would allow judges to set new repayment terms for millions of mortgage holders who wind up in bankruptcy court, people involved in the talks say.(1)

• A person close to Citigroup said that it is still negotiating details of an agreement with lawmakers, and that it hasn’t made a final decision to embrace the “cramdown” legislation. But the efforts mark a surprising change of direction by the financial-services industry. Banks have consistently fought such legislation.(2) They say that cramdowns, when bankruptcy judges force lenders to modify mortgages, would raise borrowing costs for all home buyers.

For more, see Citigroup, Senators in Talks to Let Judges Modify Mortgages.

(1) The story states the reversal by lenders reflects new political realities in Washington, and a judgment that banks may lose less in the long run by negotiating a compromise on an issue that resonates with Americans squeezed by job losses and credit problems.

(2) According to the story, the National Association of Home Builders has also made a “U-turn” and reversed its years-long opposition to cramdowns, as foreclosures choke the market for new homes.