On Thursday, federal and state officials announced a $26 billion foreclosure settlement with five of the largest home lenders. California is expected to receive approximately $12 billion in principal write-downs, including through short sales, over the next three years, according to the state attorney general’s office.

Making sense of the story

• The deal settles potential state charges about allegations of improper foreclosures based on robo-signing, seizures made without proper paperwork.

• The settlement sets up a federal monitor to oversee the process and try to prevent the challenges that tripped up many homeowners seeking help in earlier programs designed to address the housing crisis.

• Most of the relief will go to those who are underwater on their homes. That relief will come over the course of the next three years, with banks having incentives to provide most of the relief in the next 12 months.

• At least $17 billion will go to reducing the principal owed by homeowners who are underwater and behind on their mortgages.

• Up to 750,000 other underwater homeowners who are current on their mortgages will be able to refinance their current loans at lower rates. They will not receive a reduction in principal, but with mortgage rates near record lows, they could receive substantial savings on their monthly payments.

• Approximately $1.5 billion will go to homeowners who had their homes foreclosed upon between Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria. They will receive up to $2,000 each.

• The five mortgage servicers that are parties to the settlement include Bank of America, JP Morgan Chase, Citigroup, Wells Fargo, and Ally Financial (formerly GMAC).

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Fannie Mae and Freddie Mac recently extended their foreclosure forbearance programs to give short-term aid to unemployed homeowners, but housing counselors warn that these borrowers will need to look at longer-term solutions.

Making sense of the story

• In a forbearance program, a lender agrees not to foreclose on a property and gives the borrower several months’ grace from or reduction in monthly mortgage payments. The programs work best for temporary setbacks, like job loss, health problems, or natural disasters.

• There are drawbacks to the forbearances though. The most-significant drawback is a larger total debt from the smaller payments. The unpaid balance continues to increase during this time.

• The new temporary mortgage payment is often set to 31 percent of the household income; in some cases lenders agree to accept no payments. Fannie Mae’s extended unemployment program, first offered in the fall of 2010, limits any nonpayment or other forbearance plans to one year, with the second six months requiring approval by both Fannie Mae and the lender.

• However, even with the program in place, the lender could still report a mortgage as delinquent, which could adversely affect the borrower’s credit score.

• Because some agreements add onerous term and conditions, homeowners should consult with a housing counselor certified by the Dept. of Housing and Urban Development.

Interest rates are the lowest in decades, enticing many borrowers to shop for a loan. Mortgage lenders adjust their rates based on perceptions of risk, so unless the borrower can show they’re a low-risk individual, the borrower is unlikely to qualify for a rate that matches those seen in recent advertisements and headlines.

Making sense of the story

• The rates quoted are averages drawn from a variety of financial institutions, and lenders use varied approaches to set them. Consumers who want to try for the lowest rates available need to consider basic factors, such as credit score, points, property type,down payment, and length of the loan.

• Credit score: The ideal borrower has a FICO score of 740 or higher, which puts the individual in the best place for pricing.

• Points: The lowest rates usually are decreased by paying a fee called a point, or 1 percent of the loan amount. Borrowers may buy points in order to get the best rates at many banks. Points might make sense depending on the borrower’s financial situation and how long they expect to stay in the home.

• Property type: Borrowers planning to buy a duplex or a four-unit build likely will have a higher interest rate. Condominiums also may have a rate premium rate, especially if they are newer or the down payment is less than 25 percent. Lenders also may charge more if the borrower is not planning to live in the home.

• Down payment: Borrowers who put down at least 25 percent are more likely to obtain the best interest rates. Lenders offer different breaks on rates if equity in the property is higher, so borrowers should ask what is available.

• Length of loan: Borrowers who are likely to move in a few years may want to look into an adjustable-rate loan with a low interest rate fixed for a few years, and adjusted afterword.

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If you’re behind on your mortgage payments, I can help you sell your home quickly, eliminate your mortgage debt and stop your losses. Then you can get back to your life and begin saving for future purchases like another home. And you won’t have a foreclosure on your credit record.

Contact me now to learn more.

You do have alternatives to bankruptcy and foreclosure. In today’s market, loan holders are willing to make incredible adjustments to mortgages. Remember, lenders are in the financial business, not the real estate business. They have an incentive to avoid foreclosure, too.

That’s where I come in. I’ve worked with lots of loan holders to help homeowners get back on their feet. I will help you explore your options, including:

• Arranging lower payments
• Negotiating a lower interest rate
• Extending the term of your loan
• Changing from a variable rate to a fixed rate

Best of all, you can receive these services without a fee!

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