Latest News

8:44 a.m. | Updated

Bank of America agreed on Monday to pay more than $10 billion to Fannie Mae to settle claims over troubled mortgages that soured during the housing crash, mostly loans issued by the bank's Countrywide Financial subsidiary.

Under the terms of the pact, Bank of America will pay the housing giant $3.6 billion, and will also spend $6.75 billion to buy back mortgages from Fannie Mae at a discount to their original value.

The settlement will resolve all of the lender's disputes with Fannie Mae, removing a major impediment to Bank of America's rehabilitation. The firm had settled its fight with Freddie Mac, the other government-owned mortgage giant, in 2011. By removing part of the bank's mortgage albatross, the move on Monday marks a continued retreat by Bank of America away from home lending, even as rivals JPMorgan Chase and Wells Fargo compete for the profitable refinance business that has boomed with interest rates persistently low.

Bank of America also agreed to sell the servicing rights on about $306 billion worth of home loans to other firms. In separate statements, Nationstar Mortgage Holdings and the Newcastle Investment Corporation announced that they were buying the rights. Those servicing costs, which were roughly $3.4 billion in the third quarter, have weighed down the bank's profits, especially as borrowers fall behind on their bills.

Signaling a desire to move away from mortgage servicing, Brian Moynihan, the bank's chief executive, said in November that he intended to sell off roughly 2 million loans that the bank currently servicers.

"Together, these agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time," Mr. Moynihan said in a statement on Monday.

Bank of America said that it expected the settlement to hurt its fourth-quarter earnings by $2.5 billion.

The deal on Monday helps the bank move away from its troubled mortgage business. Still, the bank's attempts to resolve other costly mortgage litigation have so far been stymied. Looking to appease investors that sued the bank for losses when mortgages packaged into securities imploded during the financial crisis, the bank agreed to pay $8.5 billion in June 2011. But, the settlement, which would help mollify investors including the Federal Reserve Bank of New York and Pimco has been stalled.

Further thwarting Bank of America's retreat from the mortgage business, federal prosecutors sued the bank in October, accusing it of churning through loans so quickly that quality controls were virtually forgotten. The Justice Department sued the bank under a law that could mean Bank of America could pay well more than $1 billion to settle. Bank of America is among 14 banks said to be negotiating with federal regulators to resolve such claims related to foreclosure abuses.

Ben Protess contributed reporting.