Your Finances: The mortgage settlement and you

The housing settlement announced earlier this month should make it easier for troubled homeowners to modify their mortgages and escape foreclosure, but it won't make everyone whole.

Those who have already lost their home to foreclosure could get payments of between $1,500 and $2,000.

"People can't wait, they need to act," said Alys Cohen, a staff attorney with the National Consumer Law Center, an advocacy group. Borrowers have to modify their mortgages before the end of the year to qualify for the tax break.

There are a few key points for borrowers to note:

Unless your mortgage is serviced by one of the five banks that were part of the agreement, you will have to wait for a subsequent agreement expected with other lenders.

The relief will not come quickly, and may take up to three years for the process to work.

Homeowners whose mortgages are backed by Fannie Mae or Freddie Mac will not qualify for principal reductions.

So, what should troubled borrowers do now? That depends on how troubled they are.

If you have stopped making mortgage payments and owe more than your home is worth, you are the target person this settlement is designed to help first. You may be able to negotiate a reduction in the amount you owe on your loan.

Start with the new national website set up by the federal government for the settlement. Each servicer has set up a website to handle your case. Go there and start the process. The lenders in this month's agreement are: Bank of America; Ally Financial Inc.; Citigroup Inc.; J.P. Morgan Chase and Wells Fargo & Co.

Document your efforts, and -- if your case is complex or you don't think you are being treated right -- find a housing counselor to help you. You can find one on the website of the Department of Housing and Urban Development.

If you do win a principal reduction, you will not owe income taxes on it if the paperwork is completed in 2012.

You may not get everything you need or want. Some $17 billion was set aside for principal reductions and related relief, but the nation's homeowners are as much as $700 billion underwater, by some estimates.

Homeowners who have been making payments on mortgages that are bigger than the value of the loan won't be able to win principal reductions under this program. But they may be able to refinance to more favorable mortgages.

Again, contact your servicer directly and request that refinance.

If you have already been foreclosed upon, contact your state attorney general's office and make sure you are put on whatever list they are building for the cash payments.

The $1,500 to $2,000 average payment is "obviously not enough money to deal with the pain of losing your home," says Ira Rheingold, executive director of the National Association of Consumer Advocates. But it will help.