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What the Foreclosure Settlement Means for You

NEW YORK (CNNMoney) -- The $26 billion foreclosure settlement has finally been given the green light, making it possible for roughly two million of the nation's hardest hit borrowers to see a significant reduction in their mortgage payments.

What did the mortgage lenders and loan servicers agree to do? The banks and servicers have committed at least $17 billion to reduce principal for borrowers who 1) owe far more than their homes are worth 2) are behind on payments.

The amount of principal reduction will average about $20,000 per borrower in the cases of four of the banks. The Bank of America reductions will be even steeper, averaging $100,000 or more, according to spokesman Rick Simon.

Another $3 billion or more will go toward refinancing mortgages for borrowers who are current on their payments. This will enable them to take advantage of the historically low interest rates that are currently available.

The banks will pay $5 billion to the states and the federal government, the only hard money involved in the deal. Out of that fund will come payments of $1,500 to $2,000 to homeowners who lost their homes to foreclosure. Other funds will be paid to legal aid and homeowner advocacy organizations to help individuals facing foreclosure or experiencing servicer abuses.

Another $1 billion will be paid directly by Bank of America to the Federal Housing Administration to settle charges that its subsidiary, Countrywide Financial, defrauded the housing agency.

...There could be a separate deal made with some smaller lender-servicers, according to Geoff Greenwood, spokesman for the Iowa attorney general's office.

He said the attorneys general have started working on an agreement with several other banks, which combined represent a much smaller percentage of mortgage loans than those held by the big five lenders that are already participating in the settlement.

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