Iowans could see about $25 million in direct aid from the first interstate settlement with the five largest mortgage servicers, but Iowa Attorney General Tom Miller says they should take the initiative to determine if they will benefit from the agreement.

Iowans who lost homes to foreclosure between Jan. 1, 2008, and Dec. 31, 2011, could be eligible for payments expected to average $1,500. The claims will be processed through a legal claims administrator that will be hired by the 49 states participating in the settlement.

“Underwater borrowers,” whose loans exceed their home’s worth, may be eligible for principal reductions and loan interest rate modifications that will lower their monthly payments.

Miller on Tuesday said the principal reduction and loan modifications will allow borrowers to retain their homes and provide the lender with more than what it would receive through foreclosure and sale of the property. He compared the mortgage modifications to agricultural loan modifications that allowed farmers to stay on their land in the wake of the 1980s farm crisis.

New protections from loan servicing abuse also will take effect. Richard Corday, director of the federal Consumer Financial Protection Bureau, said the agency will rigorously enforce mortgage-servicer standards of conduct established in the settlement.

The settlement with Bank of America, Wells Fargo, Citi, Chase and Ally was announced Thursday, Feb. 9, by federal officials and state attorneys general who had been investigating the improper servicing and foreclosure practices. The lenders will pay a combined $25 billion penalty to be divided among the 49 participating states.

Miller said the agreement was the fruit of a state and federal coalition that began rolling in September 2010 after allegations of robo-signing of foreclosure documents surfaced.

Miller, who helped lead negotiations, said “a huge number of Iowans will benefit.” He was especially pleased that the servicers agreed to reductions in principal, or the original borrowed amount, after earlier rejecting the notion as unworkable.

A direct payment of $15.3 million from the settlement will go to Iowa. Miller said the funds will be used primarily to support the Iowa Mortgage Help Hotline and Legal Aid, which provide services to affected homeowners.

Miller said the agreement covers only about 60 percent of mortgages serviced, and the coalition will next seek a similar settlement with the next nine-largest mortgage servicers.

Implementation of the agreement will begin later this month when it is filed in federal court. The banks will have three years to fulfill the terms of the deal because of the complexity of the mortgage market and the agreement.

Borrowers may be contacted by one of the five mortgage services directly about loan modification offers. They also may be contacted by a settlement administrator or their state attorney general, or may need to contact their mortgage servicer to obtain more information about specific programs and whether their loan qualifies.

Miller said Iowans who want to find out if they qualify for principal reduction or mortgage modification assistance should call the toll-free Iowa Mortgage Help Hotline at (877) 622-4866. He said they also can call his office at (515) 281-5926 or toll free at 888-777-4590.

“It’s really important for Iowa homeowners who are in distress to come forward and work through one of these channels,” Miller said. “The Iowa Mortgage Help Hotline has expanded its hours of operation to work with borrowers.”

The settlement with the five largest mortgage servicers has been condemned as inadequate by Iowa Citizens for Community Improvement, a group advocating for homeowners. Underwater mortgages nationwide total nearly $700 billion, the group said.

“Compared to the housing crisis we’re in right now, this is a drop in the bucket,” said Hugh Espey, the group’s executive director.  He said Miller promised fundamental transformation of the mortgage industry in meetings held over a year ago, “but it looks like he just struck out.”

The number of houses in foreclosure in Linn County, as of December, was 93, according to RealtyTrac, an Irvine, Calif., company that tracks notices for defaults, scheduled home auctions and home repossession warnings. In Johnson County, 29 houses were in foreclosure.