Banks may decide who will be offered principal reduction under new program

Q: How can I find out if I can refinance under the recent mortgage settlement agreement reached between most state attorneys general and major banks?

A: At this point, it's almost easier to tell whether you won't qualify for a cut than determining who will.

The banks are supposed to spend about $3 billion of the $26 billion settlement refinancing about 750,000 underwater borrowers who are current on their payments into new, lower-interest loans.

First of all, you won't qualify if your loan isn't serviced by one of the five participating banks. That's Ally/GMAC, Bank of America, Citi, JPMorgan Chase and Wells Fargo. And your primary mortgage can't be owned by Fannie Mae or Freddie Mac -- the big government-owned companies that provide most of the money for home loans in this country.

If it is, the government's recently improved Home Affordable Refinance Program is for you instead. Loans owned by private investors aren't eligible for refinancing either. Only those held by one of the banks involved in the settlement will qualify. They'll choose who will ultimately benefit.

Q: What other benefits are included in this deal?

A: The biggest chunk of the settlement, about $17 billion, will be used to reduce the debt for about 1 million underwater homeowners on the verge of foreclosure. One out of every five Americans with a mortgage owes more than their properties are currently worth, an average of about $50,000 more.

To qualify for principal reduction, a homeowner must not only be underwater but behind on their payments or at "imminent risk" of default. The loan modifications are intended to help homeowners with first mortgages or with both first and second mortgages on their homes.

Ultimately, the banks will decide who will be offered principal reduction.