Bank of America Corp says it will spend more than $US10 billion ($A9.5 billion) to settle mortgage claims resulting from the US housing meltdown.
Under the deal announced on Monday, the bank will pay $US3.6 billion ($A3.45 billion) to Fannie Mae and buy back $US6.75 billion in loans that the North Carolina-based bank and its Countrywide banking unit sold to the government agency from January 1, 2000 through December 31, 2008. That includes about 30,000 loans.
CEO Brian Moynihan said the agreements were "a significant step" in resolving the bank's remaining legacy mortgage issues while streamlining the company and reducing future expenses.
Bank of America bought Countrywide Financial Corp in July 2008, just before the financial crisis. Countrywide was a giant in mortgage lending, but was also known for approving risky loans.
Fannie Mae and Freddie Mac, which packaged loans into securities and sold them to investors, were effectively nationalised in 2008 when they nearly collapsed under the weight of their mortgage losses.
Bank of America's purchase of Countrywide originally was lauded by lawmakers because the bank was viewed as stepping in to eliminate a bad actor from the mortgage market. But instead of padding Bank of America's mortgage business, the purchase has drawn a drumbeat of regulatory fines, lawsuits and losses.
Bank of America said the loans involved in the settlement have an aggregate original principal balance of about $US1.4 trillion. The outstanding principal balance is about $US300 billion.
"Fannie Mae has diligently pursued repurchases on loans that did not meet our standards at the time of origination, and we are pleased to have reached an appropriate agreement to collect on these repurchase requests," Bradley Lerman, Fannie Mae executive vice-president and general counsel, said in a statement.
Bank of America said it is also selling mortgage servicing rights on about two million residential mortgage loans. The loans have an aggregate unpaid principal balance of approximately $US306 billion.
The transferring of the servicing rights is expected to take place throughout the year.
In addition, the bank will pay $US1.3 billion to Fannie Mae to settle loan servicing compensatory fee obligations.
Bank of America said its fourth-quarter will include various items related to the settlement and other matters, but that it expects "modestly positive" earnings for the period.